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IMF cuts Australia’s growth forecast

After having lowered its growth forecasts for both Australia and China, the International Monetary Fund (IMF) has warned that, aside from its neighbor Mongolia, Australia will be the most effected by a slowing Chinese economy.

Despite a survey undertaken by National Australia Bank (ASX: NAB) that suggested that confidence had soared to a three-year high last month – on the back of record low interest rates and the Coalition’s election win – the IMF’s downbeat review comes as the world experienced growth of just 2.9% for the year, which marks the weakest year since the 2009 global financial crisis.

Having lowered its growth forecast for Australia next year from 3.3% (estimated in April) to just 2.8% today, the IMF also stated in the report that the extent of the downturn in emerging economies had taken the fund by surprise. By 2016, the fund suggests that the economies of China, India and Brazil will be a whopping 8-14% smaller than what it had anticipated just two years ago. Subsequently, China’s growth rate for next year has also been revised to 7.3% from 7.7%.

This is bad news for Australian miners such as BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO), and Fortescue Metals Group (ASX: FMG), which have all committed to ramping up their supply of iron ore in the coming years. Lower growth rates and decreased demand will have a negative effect on the commodity’s value which will reflect poorly on revenues and share prices.

Aside from slowing growth rates however, the IMF acknowledged that there are numerous other threats facing the world today, including the US government’s debt ceiling situation – which it said could “seriously damage the global economy” – as well as the possibility of Europe sparking a new world financial crisis.

Foolish takeaway

Commodities have shown strong resilience in recent months and have acted as a support on the share prices of miners. However, at today’s prices, the risks of most miners far exceed the potential benefits to be realised, making it a sector to avoid until volatility begins to subside. In the meantime, there are plenty of other opportunities (particularly given the market’s plunge over the last week)!

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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