OECD revises projections (Afternoon analysis 20.09.2018)

The OECD lowers global growth projections, but this does not stop market optimism. The dollar is depreciating and emerging market currencies are strengthening. Slight changes in the euro or the franc, but the US currency is clearly dropping in relation to the PLN.

The Organisation for Economic Cooperation and Development (OECD) has lowered its world economic growth forecasts for both this and next year. The changes are only for some countries (the last full report was in May), but according to new estimates, the world's GDP in 2019 will grow by 3.7%, while 4 months ago 3.9% was expected.

Strong downward revisions of economic activity were observed for example in Brazil (from 2.0% to 1.2% this year) and Turkey (from 5% to 0.5% in 2019). In the case of Turkey, the new OECD projections coincided with the deadline for revising the estimates of the local Ministry of Finance. The Turkish institution is definitely more optimistic about the condition of the local economy and estimates its growth at 2.3% next year.

However, the market is clearly not worried about the possibility of slower growth. The dollar is clearly depreciating and the euro, the pound or the currencies of emerging countries are appreciating. Sessions in the USA also started with solid increases, which strengthen the chances of maintaining good sentiment.

The weaker dollar does not hamper further growth in yields of the US Treasury bonds. The yields maturing in 10-year are close to 3.10 %, which is just a matter of time from reaching new long-term records. The market seems to be very optimistic about the future, which will be very difficult to maintain in the coming months. However, with such positive sentiment, it is extremely difficult to predict the moment of even a short-term economic slowdown.

It is also worth noting that apart from the OECD revision, the short presentation by the OECD includes information not only about "building bubbles" but also, among other things, the behaviour of market indexes. Since January 2007, S&P 500 has already increased by more than 100 % and NASDAQ by less than 250%. With the current global events, such strong optimism on the US markets is very controversial.

In terms of the zloty, the situation remains unchanged as far as the euro or the franc is concerned. On the other hand, the dollar depreciated significantly, which is a consequence of its situation on the global market. Despite the current strong optimism, the next few hours are not expected to be particularly positive for PLN. In addition, the dollar's weakness (given the current monetary conditions in the USA and the expected slowdown in the emerging markets) should not be continued in the following weeks.