IMF Slashes Growth Forecasts [ May 14th, 2009 ] Posted in » Forex News

Forex news continues to be predictably grim. Last month, the International Monetary Fund (IMF) slashed its growth forecast for every major country and predicted that the global economy will contract 1.3% this year, although the IMF did issue a sliver of hope that it would grow 1.9% next year, depending on the state of the financial system. Until then, however, forex trading is expected to remain volatile.

The U.S., which the IMF said is at the epicenter of the crisis, is expected to contract 2.8% this year, and recovery is unlikely until 2010. However, the U.S. recession may ease before the Eurozone recession due to earlier distribution of stimulus funds and the U.S. government’s aggressive actions to restore liquidity. In comparison, the Eurozone economy is expected to contract 4.2% this year and another 0.4% next year, signaling the need for EU countries to coordinate a comprehensive, collective response to the crisis.

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First In, First Out for U.S. Economy

That’s the conclusion reached by this GFT Forex Blog post. The author says that as the first G7 economy to enter recession, back in 2007, the U.S. will also be the first to make a full recovery. The author continues, “The other way to look at the current economic situation is that if the U.S. economy does not recover, no one else will. Globalization has increased the mutual dependency of many countries. For export dependent countries in the Eurozone and Asia, a rebound in U.S. demand is essential for a recovery.”

That thinking is likely at the root of the dollar’s perennial status as a forex trading safe haven.  Even though there are periods when it’s seen as riskier than other currencies, traders keep coming back to the USD for safe (well, safer) online trading. However, will the USD maintain its strength when the global economy stabilizes? The author says that recovery will lead to “a new shift toward fundamentals” and a resulting focus on the large amount of U.S. government debt.

Economists have predicted that recovery could begin as early as 2010, so in the next few months, it’ll be interesting to track the USD and see if the “first in, first out” phenomenon also means that the USD is the first one to lose some of the spoils of the recession.  

March 27th, 2009 | Leave a Comment

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