The International Monetary Fund has added to concerns about the health of the global economy by cutting its growth forecasts for the next two years and warning that recovery from the financial crisis could be derailed altogether if key challenges are mishandled.
The Washington-based body said world output would be 0.2 points lower in 2016 and 2017 compared with forecasts made just three months ago – and that the risks to its predictions were to the downside.
RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that major stock markets could fall by a fifth and oil may plummet to $16 a barrel.
The bank’s credit team said markets are flashing stress alerts akin to the turbulent months before the Lehman crisis in 2008. “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” it said in a client note.
The dollar pared gains after hitting an 8-1/2-month high against major currencies on Monday, while the prospect of further European Central Bank stimulus dragged the euro, and oil futures fell on worries about a growing supply glut.
Global stock markets were mixed, with Wall Street ending the session lower ahead of a crucial payroll report Friday, while European shares finished higher. The three major U.S. indexes ended November higher for a second straight month.
Worries of a deepening China economic slowdown intensified on Friday after a private survey showed the factory sector shrank at its fastest rate in almost 6-1/2-years in August, hammering global stocks and commodity prices.
The gloomy figure sent investors fleeing for cover in gold and bonds, fearing China’s sagging economy would translate into slower global growth and muddy the outlook for the timing of the first U.S. interest rate hike in nearly a decade.
Stock markets in the Middle East have fallen sharply after a difficult week for all major global share indexes.
The Dubai Financial Market closed down 7%, while the Saudi exchange also lost 7% after Fitch ratings agency cut its outlook for the country.
Last week, the Dow Jones in the US fell 6%, while the UK’s FTSE 100 posted its biggest weekly loss this year of 5%.