The International Monetary Fund cut its global growth forecast last July 9 for the fifth time since 2012 due to the slow growth of emerging economies like China and effects of recession in Europe.
The IMF says China's slow growth was a big risk as the world's second biggest economy moves to growth led by consumption. Any kind of economic slowdown could affect Australia and other commodity exporters. China is one of the biggest consumers of energy in the world.
The IMF warned in its mid-year financial check that global growth could stall even further if the U.S. Federal Reserve's monetary stimulus will pull back causing a reversal in capital flow and growth in developing countries.
The IMF pegged the 2013 global growth forecast at 3.1 per cent. The figure is below the earlier growth projection of 3.3 per cent in April. Forecast for 2014 is also reduced to 3.8 per cent after a previous prediction of 4 per cent growth.
In a World Economic Outlook report update, the IMF did not expect the recession in Europe to be on a bigger scale. It also did not expect the U.S. to push through with spending cuts that would stall growth.
Effect of China's missed trade surplus expectations
China's trade surplus of US$27.13 billion missed expectations this June as both imports and exports declined as well. A government spokesperson says China's foreign trade to face "grave challenges" ahead.
China's exports fell 3.1 per cent from June 2012 according to information from the General Administration of Customs. Imports dropped to 0.7 per cent a year ago.
China's trade information is the highlight of Asian economies today. This gives investors the opportunity to check the economic status of Asia's largest economy.
The trade surplus in China caused the Australian dollar to drop to US$0.9141 from US$0.9175 before the information was released.
Tim Waterer, a foreign exchange dealer at CMC Markets says the dollar was consolidating its gains during the last few days. The Australian dollar will be trading between US$0.9130 and US$0.9190 as the market traders move ahead of key international events.
Waterer said the Aussie dollar will be in a tight range since it's supported by a good investor risk appetite.