SINGAPORE - A downbeat report on the outlook for the global economy from the International Monetary Fund (IMF) has placed a further dampener on the already gloomy stock market.
The local benchmark Straits Times Index fell over 11 points, or about 0.35 per cent, in early afternoon trade on Wednesday, after the IMF cut its global growth forecast for this year to 3.3 per cent, from 3.7 per cent.
The IMF said in its report on Tuesday that it had also revised its prediction for next year downwards, saying the global economy will likely grow by 3.8 per cent next year and not 4 per cent as it had originally forecast.
It warned too that stock markets are in need of a correction as some equity valuations "could be frothy".
Phillip Futures investment analyst Howie Lee wrote in a note to clients on Wednesday morning that the report should be taken with a pinch of salt.
"Forecasts are ultimately made by humans and are subjected to a high degree of uncertainty and unpredictability. In all honesty, the IMF has just repeated what we have all known for the longest time. Equity valuations are high and yes, they are due for a correction," he said.
"The IMF did not exactly spot a danger from out of nowhere; rather, they release reports sporadically, which explains why their analysis may be slightly lagged at times."
Nonetheless, the report triggered losses in both the European and US markets on Tuesday night and further depressed the mood in Asia on Wednesday.
Economists in Singapore, too, say they are not too alarmed by the IMF report.
Mizuho Bank senior economist Vishnu Varathan noted, for one, that the IMF had revised upwards its growth forecasts for emerging Asia and the so-called "Asean Five", even as it slashed the outlook for global growth.
The Asean Five are Indonesia, Malaysia, Philippines, Thailand and Vietnam.
"More importantly, by its own admission, the IMF is playing 'catch down' with market expectations," Mr Varathan added.
"They alluded to the fact that they were too optimistic before, which is why they've had to reduce their global growth forecasts three times this year and so now they are more aligned with market consensus."
