IMF Growth Scenario Has Warning for Mining Investments

In delivering its world economic outlook update last night, the International Monetary Fund reiterated its observation that the world has most likely entered a prolonged period of slow growth. Olivier Blanchard, the head of research at the Fund, described this as an environment in which advanced economies will grow at around 2% a year with emerging market economies growing at around 4%. In this context, the Fund has once again wound back the expected extent of a future growth acceleration. Realisation of this outlook would have important implications for resource sector investment decision making. Raw material demand grows most strongly when growth is accelerating. In the absence of a growth acceleration, metal usage growth is likely to be below average in the years ahead. That would feed into market balances, an important driver of prices. Market forecasts (and company investor pitches) based on historically average rates of growth which have typically included periods of rapidly accelerating demand will prove overly optimistic under these circumstances and should be heavily discounted when proffered as a basis for an investment decision.