Things are about to get worse — International Monetary Fund warns exporters

A separate chapter in the IMF’s regular update on the world economy, which is expected to highlight a weaker outlook for global growth, also predicted more pain ahead for commodity exporters amid continued low prices for oil and other raw materials.

The International Monetary Fund believes the fall in commodity prices will hurt economic expansion in South Africa, which is among the largest exporters of commodities across the world.

The Fund said many exporting countries have been better prepared for the current slump, saving more of their earnings in preparation for an industry slowdown, and letting their currencies adjust to the market, resulting in less violent swings.

“The amount of liquidity in financial markets… hasn’t demonstrated a noticeable decrease in many asset types; yet, low rates of interest may be hiding an erosion of its own underlying resilience”, the report said.

At the same time, lower commodity prices reduce the natural hedge of firms involved in this business. That means any shocks to the corporate sector could quickly spill over to banks and cause them to stop lending, in what would be another drag to the already slowing growth in many emerging economies. “A forecast of 3.8 percent for next year is not either”, she said.

It says reforms in Chile, Canada and Australia over the years have helped smooth the ups and downs of the commodities cycle, although, generally, it found that investment booms in commodity-exporting countries are “mostly booms in the commodity sector itself”.

The debts of non-financial firms in emerging market economies quadrupled, from $4tn (£2.6tn) in 2004 to well over $18tn in 2014, according to the IMF’s twice-yearly Global Financial Stability Report.

In a semi-yearly report on worldwide financial stability, the IMF stated that marketplaces for currencies, bonds, trading equities as well as other instruments usually seem fluid right now.

When prices and demand for those commodities weaken, output also slides, although in well-managed economies this level of activity is more sustainable.

European equities also largely declined on Tuesday, with British benchmark FTSE 100 Index falling 0.83 percent, as investor sentiment turned negative despite recoveries in mining and oil prices.

“Structural changes, such as reductions in market-making, appear to have reduced the level and resilience of market liquidity”, although not at an alarming pace, the Washington-based International Monetary Fund said.

“A significant deceleration in growth rates is unavoidable”.