How slower global growth could affect your investments (Part 2 of 10)

Economic growth forecast for emerging economies is dialed down

By David Ashworth Jan 23, 2015 3:19 pm EDT

Growth in advanced and emerging countries

The International Monetary Fund, or IMF, released an updated “World Economic Outlook,” or WEO, that was positive about economic growth in advanced economies in 2015. Yet it projected a slower pace of growth for emerging economies in 2015 compared to 2014.

The IMF expects advanced economies to pick up momentum in 2015. After growing by 1.3% in 2013 and by 1.8% in 2014, these nations are expected to grow by 2.4% in this and the following year.

Meanwhile, emerging market and developing economies are expected to slow in 2015. Economic growth in these nations is expected to contract by 0.1% in 2015 from the 4.4% rate seen in 2014. The pace of growth is then expected to pick back up again in 2016 to 4.7%, the same as it was in 2013.

Reasons for the outlook

The institution outlined four main developments that led to a change in its outlook since the release of its WEO report in October 2014:

• declining crude oil prices
• diverging growth rates in different economies
• the appreciating dollar and depreciating euro and Japanese yen
• widening risk spreads in emerging economies

Oil price decline

The IMF noted that in US dollars, oil prices have fallen by around 55% since September 2014. The Organization of the Petroleum Exporting Countries, or OPEC, decision not to reduce its production and “unexpected demand weakness” in major economies were cited as the two main reasons for the fall in crude oil prices.

Meanwhile, according to the WEO update, “Oil futures prices point to a partial recovery in oil prices in coming years.” For more on this topic, read A key investor’s guide to the crude oil market .

This fall in crude oil and natural gas prices has punished commodity-oriented ETFs such as the United States Oil Fund, LP (USO ) and the United States Natural Gas Fund, LP (UNG ). It has also affected the returns of companies like ExxonMobil (XOM ), Chevron Corporation (CVX ), and Schlumberger (SLB ).

In the next article in this series, we’ll look at the other three reasons for the IMF’s reduced economic growth forecast.