IMF downgrades global growth projection

Daniel Richards - MENA Economist
Published Date: 13 October 2021


The IMF has downgraded its global growth forecast by 0.1pp to 5.9% in 2021 and kept its 2022 growth forecast unchanged at 4.9%.  The slightly lower forecast for this year reflects slower growth prospects for low income developing economies on the back of worsening pandemic effects, as well as the impact of supply chain disruptions on developed economies’ growth this year. The Fund noted that there is increased uncertainty about how quickly the pandemic can be overcome, with the risk of new variants emerging.  There is also less room for maneuver in terms of policy responses.  In the GCC, growth for oil exporting economies is expected to accelerate next year with the UAE forecast to grow 3.0% next year from an estimated 2.2% in 2021. We expect GDP growth in the UAE next year to be significantly higher at 4.6% on the back of a sharp increase in oil sector growth and 4.0% non-oil sector growth. The IMF expects the Saudi economy to grow 2.8% this year and 4.8% in 2022, also lower than our forecast of 5.7%.

The UAE approved a federal government budget of AED 58.9bn for 2022 through 2026, broadly in line with the 2021 budget. There were no figures provided for budget revenue or the budget balance, although historically the federal budget has been close to balanced.  The federal government recently raised USD 4bn in bond issuances, which should be more than sufficient to cover the estimated budget shortfall of USS 1.3bn in 2021 as well as pre-fund a possible 2022 shortfall.  The federal government budget amounts to around 15% of consolidated UAE spending which includes all the emirates and focuses on social benefits and development spending across the country including education, healthcare and housing for UAE nationals.

The UAE’s annual inflation rate moved back into positive territory in August for the first time since December 2018, with CPI rising 0.4% m/m and 0.5% y/y. Transport price increases were a key driver of annual inflation, up 12.5% y/y, reflecting higher petrol prices. Food and housing continue to offset higher services costs in the UAE. We expect CPI to average 0% this year, accelerating to 1.5% in 2022.

Job openings in the UK rose to a record high of 1.2mn in September according to labour market data released yesterday. The number of people on payrolls rose by 207,000 to a record 29.2mn, though at 75.2% of 16–64-year-olds, employment levels over the three months to July remained 1.3pp lower than prior to the pandemic (payroll figures double count some people working more than one job and exclude the self-employed). Headline unemployment in the UK fell from 4.9% to 4.5% over the quarter, though there remained a sizeable number of people still furloughed in July, meaning the figure could tick higher again next quarter. The ratio of unemployed people to open positions in the UK is at a multi-decade low (a similar situation to the US, where the latest JOLTS data for August released yesterday showed 10.4mn openings, a slight dip but still near record levels). The UK labour market tightness is giving workers more pricing power, and average weekly earnings over the quarter were 7.2% higher y/y – though this was a deceleration from the previous 8.3% as base effects faded.

The Germany economy also continues to be disrupted by supply issues, though driven more by shortages of raw materials and input goods than labour. The ZEW surveys fell short of expectations this month, with the expectations measure falling from 26.5 to 22.3, short of projections of 23.5, while the current situation survey fell from 31.9 to just 21.6, far short of consensus expectations of 28.0. High shipping costs and rising prices for a range of goods needed for Germany’s manufacturing sector have weighed on output this year, and the IMF cut its 2021 growth forecast from 3.6% to 3.1%.

India’s CPI inflation fell to 4.4% in September, down from 5.3% the previous month. While the slowdown was anticipated, it beat estimates of 4.5%, and reaffirms our view that the RBI is unlikely to hike rates in the near term given its professed accommodative stance, despite concerns over tightening in developed markets. Industrial production meanwhile expanded by 11.9% m/m in August, up from 11.5% in July and faster than consensus projections of 11.6%.

Today’s economic data and releases

10:00 UK industrial production August % m/m. Forecast: 0.2%

16:30 US CPI inflation, September % m/m. Forecast: 0.3%

22:00 US FOMC minutes for September meeting released

Fixed Income

  • The US Treasury curve bear flattened overnight as 2yr UST yields added 2bps to firm up above 0.34% while 10yr UST yields dipped by 3bps to 1.5769%. The drop in the 10yr was helped by a strong auction from the Treasury overnight. Market focus today will be on the release of the September CPI report as well as the latest FOMC minutes.
  • European bond markets generally were lower overnight although moves in a broad index of benchmark government bonds was limited. Bund yields added more than 3bps, however, settling at -0.09%.
  • Emerging market bonds still remain under pressure as investors rotate out of riskier assets amid the potential of the start of a US tightening cycle. Yields on Turkish government 10yr bonds added 19ps to 18.4% overnight. Yields managed to dip slightly, though, on both South African and Indian 10yr local currency bonds.
  • The Islamic Development Bank is pricing a USD benchmark sukuk with pricing around 30bps over midswaps.


  • The dollar gained a second day running with the DXY index closing at 94.52, up 0.2% overnight. Since the September FOMC the dollar index has gained 1.4% and as language around inflation grows more hawkish globally, we would expect the dollar to remain well supported until the end of the year.
  • EURUSD was off by almost 0.2% overnight, closing at 1.153. The head of the Bank of France, Fracois Villeroy de Galhau, noted that the ECB will keep policy accommodative after the PEPP comes to an end in Q1 next year.
  • Much of the dollar strength for now comes via the yen where USDJPY moved to 113.61 overnight, up 0.26%. The prospect of sustained high oil prices will act as another to the yen strengthening in the near term. GBPUSD was also offered overnight as markets doubt the effectiveness of potential rate hikes from the Bank of England in helping to dampen inflation in the UK
  • Among the commodity currencies USDCAD slipped in favour of the loonie, still helped by the decent jobs report for September. Meanwhile both AUD and NZD were lower overnight at 0.7350 and 0.6931 respectively.


  • Supply chain and energy crises are weighing on sentiment the world over at present, especially in light of rising inflation concerns and the prospect of monetary tightening. Asia started the sell-off yesterday with the Nikkei losing -0.9%, the Shanghai Composite -1.3% and the Hang Seng -1.4%.
  • European equity markets followed suit, with the weaker-than-anticipated ZEW surveys out of Germany contributing to the DAX’s -0.3% loss. In the UK, the FTSE 100 closed -0.2% lower, and the CAC lost -0.3%.
  • US markets were not immune with all three major benchmarks closing lower. The NASDAQ lost -0.1%, the S&P 500 -0.2% and the Dow Jones -0.3%.


  • Oil prices closed mixed overnight with Brent futures settling down 0.27% at USD 83.42/b and WTI managing a gain of 0.15% at USD 80.64/b. Markets will get the EIA’s short-term energy outlook later today, with a focus on how US oil production will play out over the  next year along with the longer-term IEA’s World Energy Outlook.

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