IMF Too Upbeat on Global Growth, says Carmignac

European asset manager Carmignac is more cautious on the prospects for economic growth than the International Monetary Fund

David Brenchley 24 January, 2018 | 8:16AM
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Wall Street, New York

The International Monetary Fund’s (IMF) decision to lift forecasts for global growth in both 2018 and 2019 to 3.9% is "too optimistic”, according to asset manager Carmignac.

The IMF on Monday said the increases reflect increased global growth momentum in the broadest synchronised upswing since 2010. US tax cuts, which were passed late in 2017, will stimulate economic activity in the United States further, especially through business investment, it argues.

However, Carmignac is more cautious on the prospects for economic growth, both in the US and globally.

“The expected pace of growth, which is now 2.6%, for the US looks much too high too us,” says Frederic Leroux, global fund manager at Carmignac. “We have an expectation which is much closer to 2%, so a big difference. If the US grows by 2%, or a bit less, global growth will not reach 4%.”

Leroux says that, while the tax reforms are clearly a positive for the global economy, the immediate benefit is overblown.

He adds that US consumers are likely to rebuild their savings from historically low levels rather than continue to spend at current rates.

“We anticipate that even if you have some wage increases due to the tax reform, it is very likely that instead of being consumed these higher wages will be used to rebuild this savings rate,” Leroux explains. Therefore, this will not feed through into US growth figures.

Meanwhile, he points out that some components of investment growth have slipped into negative territory. Judging by troughs in previous cycle, he adds, this downturn is not over yet.

Onshore Cash Will be Spent Slowly

Further, even a one-off drop in tax for companies to repatriate cash back onshore is unlikely to help in the near term. Apple (AAPL) currently has over $250 billion stashed offshore, which it will now bring back onshore and pay $38 billion in taxes on.

US companies reportedly have $3.1 trillion stashed offshore and may look to follow Apple’s lead. But Leroux says that cash will not be invested today or tomorrow. “The time that is invested is probably a few quarters ahead of us, so I consider that this repatriation directive will not have a positive impact in the short term.”

He adds that some large sectors of the US economy – healthcare, technology and energy – already pay an average tax rate below the new 21% level, “which means that not all the sectors will benefit directly from these lower taxes”.

“It’s difficult for us to anticipate a very positive contribution from investment to US growth,” he concludes.

Elsewhere, Leroux sees US inflation rising from March and reaching a peak of 2.5% in July, compared with around 1.8% now. This would also mean a return of volatility, which has been at a historically low level over the past 12 months.

As a result, we will see a pause from the “fairytale environment” of strong economic growth and weak inflation seen in recent years.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Apple Inc189.87 USD0.02Rating

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David Brenchley

David Brenchley  is a Reporter for

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