“Less room for error” is the sombre message in the latest review of the world economy from the International Monetary Fund. Global growth forecasts for 2016 and 2017 show a very slight acceleration but, over repeated forecast rounds, the Fund’s outlook has become progressively less optimistic. For those investors looking for signs of a cyclical recovery in resource sector equity prices, the IMF analysis offers a particularly pessimistic implication. Cycles typically arise when raw material producers are caught off-guard by unexpectedly strong global economic growth. Fears of companies being unable to meet the consequent increase in raw material demand are at the heart of the upward phase of a price cycle. That prospect appears increasingly dim. Of course, the IMF may be succumbing to the forecasters’ nightmare, namely, becoming most pessimistic at a turning point. There are, however, good reasons for its attitude. In no major economic region is growth showing signs of strengthening materially. Central banks are focussed on asset prices rather then the real economy as they struggle (with very limited support from governments) to keep inflation up.



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