The International Monetary Fund has downgraded its global growth forecast for this year as rising Covid-19 cases, supply chain disruptions and higher inflation hamper economic recovery.
In its delayed World Economic Outlook report, published Tuesday, the IMF said it expects global gross domestic product to weaken from 5.9% in 2021 to 4.4% in 2022 — with this year’s figure being half a percentage point lower than previously estimated.
“The global economy enters 2022 in a weaker position than previously expected,” the report noted, highlighting “downside surprises” such as the emergence of the omicron Covid variant, and subsequent market volatility, since its October forecast.
The revised outlook is led by growth markdowns in the world’s two largest economies; the U.S. and China.
The U.S. is expected to grow 4.0% in 2022, 1.2 percentage points lower than previously forecast as the Federal Reserve moves to withdraw its monetary stimulus, even as supply chain disruptions weigh on the economy. The updated outlook also removed President Biden’s signature Build Back Better fiscal policy package from its baseline projection after failure to pass the original bill.
China, meanwhile, is predicted to grow 4.8% this year, down 0.8 percentage points from earlier estimates amid disruptions caused by its zero-Covid policy, as well as “projected financial stress” among its property developers.
Inflation in focus
Elsewhere, still surging Covid cases coupled with rising inflation and higher energy prices weighed on growth estimates globally, most notably in Brazil, Canada and Mexico.
The IMF said higher inflation is set to persist for longer than previously anticipated, but added that it should ease later this year, “as supply-demand imbalances wane in 2022 and monetary policy in major economies responds.”
Looking ahead, the report upgraded its 2023 growth forecast by 0.2 percentage points to 3.8%. However, it warned that the estimate precluded the emergence of a new Covid variant, and said any pickup would be dependent on equitable global access to vaccines and health care.
“The forecast is conditional on adverse health outcomes declining to low levels in most countries by end-2022, assuming vaccination rates improve worldwide and therapies become more effective,” it said.
“The emphasis on an effective global health strategy is more salient than ever,” it added.
Stock futures rise after Dow falls for 8th-straight week in relentless sell-off
Stock futures rose early on Monday after the Dow Jones Industrial Average fell for its 8th straight week amid a broader market sell-off.
Futures on the Dow Industrial Average gained 245 points, or 0.78%. S&P 500 futures added 1.07% and Nasdaq 100 futures rose 1.19%.
The moves came after the S&P 500 on Friday dipped into bear market territory on an intraday basis. While the benchmark was down 20% at one point, it did not close in a bear market after a late-day comeback.
In Friday’s regular trading session, the S&P 500 closed 0.01% higher at 3,901.36 after falling as much as 2.3% earlier in the session. The Dow added 8.77 points at 31,261.90 after sinking as much as 600 points and the Nasdaq inched 0.3% lower.
The S&P 500 currently sits 19% off its record high while the Dow is down 15.4%. The Nasdaq is already deep in bear market territory, down 30% from its high.
Last week marked the Dow’s first eight-week losing streak since 1923, while the S&P 500 capped a seven-week losing streak, its worst since 2001.
The Nasdaq saw its seventh negative week in a row for the first time since March 2001. The tech-heavy index also saw its lowest intraday level since November 2020 on Friday.
Eight of 11 sectors ended the week in the red, led by consumer staples, which dipped 8.63% and had its worst weekly performance since March 2020. Energy finished the week on top, rising 1.09%. Consumer discretionary and communication services also finished the week more than 32% off their 52-week highs.
“Investors are trying to come to grips with what exactly is happening and always try to guess what the outcome is,” said Susan Schmidt of Aviva Investors. “Investors hate, and the markets hate uncertainty, and this is a period where they don’t have any clear indication on what’s going to happen with this push-pull between inflation and the economy.”
Investors are looking ahead to a new batch of earnings this week, including an array of big retail names. Zoom Video is set to report results Monday followed by Costco, Nvidia, Dollar General, Nordstrom and Macy’s later in the week.
US stocks suffer biggest daily drop in almost two years
US stocks posted the biggest daily drop in almost two years as investors assess the impact of higher prices on earnings and prospects for monetary policy tightening on economic growth. The dollar and Treasuries gained amid a pickup in haven bids.
The selloff sent the S&P 500 down 4%, with the plunge in consumer shares surpassing 6%. Target Corp. tumbled more than 20% in its worst rout since 1987, after trimming its profit forecast due to a surge in costs. Shares of retailers from Walmart Inc. to Macy’s Inc. were caught in the downdraft. The Nasdaq 100 fell the most among major benchmarks, dropping more than 5% as growth-related tech stocks sank. Megacaps Apple Inc. and Amazon.com Inc. slid at least 5%.
Treasuries rose across the board, sending the 10- and 30-year Treasury yields down as much as 11 basis points. The dollar rose against all of its Group-of-10 counterparts, except the yen and Swiss franc. Gold caught bids in the move into havens.
The benchmark S&P 500 is emerging from the longest weekly slump since 2011, but any rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns.
In some of his most hawkish remarks to date, Federal Reserve Chair Jerome Powell said Tuesday that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. Chicago Fed President Charles Evans said Wednesday he sees a half-point rate increase at next month’s meeting and “probably thereafter.”
In Europe, new-vehicle sales shrank for a 10th month in a row as the industry remains mired in supply-chain crises, while euro-area inflation plateaued at a record high. Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank.
Netflix lays off 150 employees due to slow revenue growth and business needs
Netflix is reportedly laying off nearly 150 employees in the coming days due to disappointing earnings and slow revenue growth.
According to a Variety report, the Amazon Prime Video rival might also terminate its contract with contractual contributors.
The layoffs are about 2 per cent of Netflix’s US workforce. “As we explained [in reporting Q1] earnings, our slowing revenue growth means we are also having to slow our cost growth as a company. So sadly, we are letting around 150 employees go today, mostly U.S.-based,” a Netflix spokesperson said.
The statement further revealed that the decision was primarily driven by business needs rather than individual performance. Netflix reported $7.87 billion in Q1, which was short of Wall Street’s estimates of $7.93 billion.
The report further reveals that nearly 70 part-time employees in Netflix’s animation studio will have to pack up and leave. A report by The Verge stated that about 26 contractors working on Netflix’s fan-focused Tudum website might see a termination.
“A number of agency contractors have also been impacted by the news announced this morning. We are grateful for their contributions to Netflix,” the company said.
Netflix, in its recent earnings call, revealed that it lost thousands of subscribers, which is a first for the company in over a decade.
The company expects to lose an additional 2 million in the next quarter due to the ongoing war between Russia and Ukraine. Netflix has shut shop in Russia following the country’s invasion of Ukraine.
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