In a summer update to its twice-yearly forecasts, the IMF said the UK economy is slowing and likely to grow only 1.7% this year which is 0.3% down from its last forecast in April. The forecast for 2018 has remained unchanged at 1.5%. This is the first downgrade for the UK economy since the EU referendum last year.
Maurice Obstfeld, the IMF’s economic counsellor blamed the downgrade on the UK’s “tepid performance” so far this year and uncertainty over the ultimate impact of Brexit.
Across the Atlantic it appears the US economy is slowing down too. The IMF has cut its growth forecast for the US from 2.3% to 2.1% this year and from 2.5% to 2.1% next year. President Trump’s failure so far to deliver on his election promises of tax cuts and infrastructure spending is given as the reason.
In contrast, the outlook for Europe is looking much brighter as the IMF has upgraded its forecasts for the four largest Eurozone countries - Germany, France, Italy and Spain.
The biggest Eurozone revisions were for the Spanish and Italian economies. Spain is now forecast to grow 3.1% this year, up from the previous prediction of 2.6% while Italy's 2017 growth forecast has risen from 0.8% to 1.3%.
Looking at the wider global outlook, better growth in the euro zone and further east in China and Japan is compensating for the slowdown in the US. The IMF has left its April forecast for global growth unchanged at 3.5% for this year and 3.6% for next year. “There is now no question mark over the world economy’s gain in momentum” said Mr Obstfeld.
So what does this all mean for investors? In the UK the consumer, the bedrock of the economy, is feeling the squeeze with inflation outpacing any growth in wages. While the weak pound has boosted the profits of the more internationally-focused FTSE 100 companies, the same cannot be said for business in the smaller FTSE 250, especially those importing goods from overseas.
With a gloomier outlook ahead, the gap between the winners and losers will be greater. This is when an active approach to investment becomes even more important than passively tracking an index. An actively-managed fund has the advantage of an expert manager handpicking those companies with the best potential to outperform the broader market, rather than being exposed to every company in every sector.
With the outlook improving in Europe and further afield, the importance of diversification is also important for investors, especially those more domestically focused.
Investing in funds is an easy way to get more diversification into your portfolio and invest in markets that may be difficult to access on your own.
Our Select 50 list of preferred funds is split into eight categories and includes options in Europe such as the Barings German Growth Trust for those wanting to invest solely in Germany to broader options in the region such as the FP CRUX European Special Situations Fund and Invesco Perpetual European Equity Income Fund.
For those looking for a ready-made internationally diversified fund we feature five global funds on the list including the Fidelity Global Special Situations Fund and Rathbone Global Opportunities Fund.
With the ultimate impact of Brexit on the UK economy still very much unclear, now may be the time to go more global.
Jonathan graduated from Coventry University with a degree in business administration. He joined Fidelity in 1997 and has worked in a number of different operations and marketing roles in the UK and India. He is currently a senior production manager for the Markets and Insights team in Fidelity’s Personal Investing Channel.
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