Is the Global Economy Slowing?

Is the global economy slowing? If so, how does that effect currency values and Forex trading? According to Reuters, the IMF is cutting its global growth forecast and warning of economic stagnation.

The International Monetary Fund cut its global growth forecast for the fourth time in the past year on Tuesday, citing China’s slowdown, persistently low oil prices and chronic weakness in advanced economies.

The Fund, whose spring meetings along with the World Bank will be held in Washington this week, forecast that the global economy would grow at 3.2 percent in 2016 compared to its previous forecast of 3.4 percent in January.

In its latest World Economic Outlook, the Fund warned of widespread stagnation risk and said weaker growth could leave the global economy more vulnerable to shocks such as currency depreciations or worsening geopolitical conflicts.

Worst case scenarios include Brazil whose economy will shrink by 3.8% this year instead of the previously predicted 3.5% and Japan whose economy will only grow by 0.5% this year down from 1%. The effects on these nations’ currencies however will be divergent as Brazil has its worst economy since the Great Depression and has an at-risk currency whereas Japan’s Yen is still considered a safe haven currency.

Tough Times and Safe Havens

When the global economy is slowing as is happening this year investors with liquid assets look for safe currency havens. The Japanese would rather that the Yen devalued a bit so that their exports would be more competitive. However, the Yen is still seen as a safe-haven currency. The Times of India picks on the lament that the Yen advances despite Japanese Central bank efforts to slow it down.

The yen extended its advance Monday despite repeated efforts to talk down the safe-haven currency, as concerns over the impact on exporters weighed on the stock market.

The Japanese currency has soared to 17-month highs in the past week as worries about the global economy sent dealers rushing in, while the prospect of US interest rates remaining low also drove a shift from the dollar.

A strong currency is damaging for Japan’s exporting giants, such as Toyota and Sony, as it makes their goods more expensive overseas and shrinks the value of repatriated profits.

Japan may have its problems but in comparison to countries like Brazil things are substantially better.

Brazil, the Real and Presidential Impeachment

After Brazil sank into recession its currency went from 1.5 to the dollar to as high as 4.0. It turns out that during Brazil’s economic good times there were too many people in high places with their fingers in the pie. That seems to have included the current president, Dilma Rousseff whose impeachment has now been recommended by the country’s lower house of congress. As a general and widespread housecleaning has progressed in Brazil its currency has improved to the 3.5 to a dollar range on prospects of a more honest and efficient government.

The Brazil president’s impeachment has been recommended by a committee of the country’s lower house of Congress that voted 38-27 Monday in favor of the removal of Dilma Rousseff, who faces charges of breaking budget laws to support her re-election in 2014, Reuters reported.

A vote in the full lower house is expected to take place on Sunday. If two-thirds vote in favor, the impeachment will be sent to the Senate.

If the upper house decides by a simple majority to put Rousseff on trial, she will immediately be suspended for up to six months while the Senate decides her fate, and Vice President Michel Temer will take office as acting president.

While the global economy is slowing the fate of individual currencies varies according to local circumstances.