IMF's Rosy Outlook Contains a Caveat for Investors

The International Monetary Fund on Tuesday said it expects the global economy to expand 3.9 percent this year and next, a forecast that is unchanged from January estimates. That's the good news for markets. The bad news is that there was something much more important in the IMF report this quarter: caveats about risks related to protectionism and global conflict.

Given that these risks have become more acute during the period since the last set of IMF growth forecasts were released in January, and that the IMF's latest estimate remained largely unchanged, it's safe to say that these risks have not been priced into the growth outlook and only partially priced into financial markets. This means that the growth outlook, commodity prices and equity markets are all at risk of dropping if U.S.-China trade relations do not see a significant thawing in the near term.