Focus Turns to UK as IMF Revises Growth in Embarrassing About Turn

[Via guest blogger Andy Alpari]

Last Wednesday saw many investors focus on UK after several days of concentrating entirely on America. As the deadline for increasing the debt ceiling grows closer, focus will undoubtedly revert back to the US but, for now at least, positive data coming out of the UK has taken the tension out of the markets. The global outlook, however, remains relatively bleak and the emerging markets in particular are still struggling to create growth.

A Lack of Progress in the US

(UPDATE: an agreement is in place to fund the government and raise the debt ceiling]

In America, no progress has been made between Republicans and Democrats thus far and, as the 17th October deadline draws closer, an agreement is looking less and less likely between the two sides.

President Obama is still forwarding his idea for a ‘clean increase’ of a debt limit which means that no conditions are attached to the debt limit rising. Mr Boehner, however, insists on the fact that this is simply not possible as “it is not how government works”.

As we are now in the second week of the government shutdown it appears less and less likely that either side will budge significantly. As a result, the prospect of America completely defaulting on its debts is a real prospect. This is extremely worrying for governments the world over as an American default would lead to a global recession. The economic calendar, however, appears busy and there is still time for the situation to change drastically.

The Situation in the UK

In the UK, however, the news was much more positive as the IMF was forced into an ‘embarrassing about turn’. In April, the IMF had accused George Osborne of ‘playing with fire’ by enforcing yet more austerity on the UK economy. After singling him out for specific criticism back then, they upgraded the UK’s growth forecast by more than any other advanced economy only 6 months later.

The IMF now believes that Britain’s economy will grow by 1.4 percent this year (double the rate they projected in April). This comes as great news for the Chancellor of the Exchequer George Osborne who is currently planning the Conservative election strategy for the 2015 General Election- economic growth will greatly help his cause.

How Global Markets are Reacting

Across the rest of the globe, however, the IMF was less positive about the prospect of growth. Global growth was down to 2.9 percent from 3.2 percent three months ago. Emerging economies such as Brazil faced the largest downgrading and, as the debt crisis in America looms large, this is incredibly bad news.

To conclude, although the debt crisis in America still looms large, much of the focus of late has shifted back towards the UK’s growth in what is an embarrassing about turn for the IMF. Globally, however, the outlook still appears bleak as global growth has been revised down 0.3 percent over the past three months alone. Now, it looks likely that all eyes will turn back towards America as we enter the second week of the government shutdown.


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