19/10/18: IMF's Woeful Record in Forecasting: Denying Secular Stagnation Hypothesis

A recent MarketWatch post by Ashoka Mody, @AshokaMody, detailing the absurdities of the IMF growth forecasts is a great read (see https://www.marketwatch.com/story/the-imf-is-still-too-optimistic-about-global-growth-and-thats-bad-news-for-investors-2018-10-15?mod=mw_share_twitter).  Mody's explanation for the IMF forecasters' failures is also spot on, linking these errors to the Fund's staunch desire not to see the declining productivity growth rates (aka, supply side secular stagnation).

So, to add to Mody's analysis, here are two charts showing the IMF's persistent forecasting errors over the last four years (first chart), set against the trend and the cumulative over-estimate of global economic activity by the Fund since mid-2008 (second chart):

While the first chart simply plots IMF forecasting errors, the second chart paints the picture fully consistent with Mody's analysis: the IMF forecasts have missed global economic activity by a whooping cumulative USD10 trillion or full 1/8th of the size of the global economy, between 2008 and 2018. These errors did not occur because of the Global Financial Crisis and the high degree of uncertainty associated with it. Firstly, the forecasting errors relating to the GFC have occurred during the period when the crisis extent was becoming more visible. Secondly, post GFC, the hit rates of IMF forecasts have deteriorated even more than during the GFC. As Mody correctly points out, Fund's forecasts got progressively more and more detached from reality.

At this stage, looking at April and October 2018 forecasts from the Fund's WEO updates implies virtually zero credibility in the core IMF's thesis of a 'soft landing' for the global economy over 2019-2021 time horizon.

12/4/16: Look, Ma... It's [not] Working: IMF & the R-word

A handy chart from the IMF highlighting changes over the last 12 months in forecast probability of recession 12mo forward across the global economy

Yes, things are getting boomier... as every major region, save Asia and ROW are experiencing higher probability of recession today than in both October 2015 and April 2015, and as probability of a recession in 2016 is now above 30 percent for the Euro area and above 40 percent for Japan.

In that 'repaired' world of Central Banks' activism (described here: http://trueeconomics.blogspot.com/2016/04/12416-imf-rip-growth-update-risks.html) we can only dream of more assets purchases and more government debt monetizing, and more public investment on things we all can't live without...

Because, look, it's working:

12/4/16: IMF (RIP) Growth Update: Risks Realism, Policy Idiocy

IMF WORLD ECONOMIC OUTLOOK update out today (we don’t yet have full data set update).

Top line forecasts published confirm what we already knew: global economic growth is going nowhere, fast.  Actually, faster than 3 months ago.

Run through top figures:

• Global growth: In October 2015 (last full data update we had), the forecast for 2016-2017 was 3.6 percent and 3.8 percent. Now, it is 3.2 percent and 3.5 percent. Cumulated loss (over 2016-2017) of 0.725 percentage points in world GDP within a span 6 months.
• Advanced Economies growth: October 2015 forecast was for 2.2% in 2016 and 2.2% in 2017. Now: 1.9% and 2.0%. Cumulated loss of 0.51 percentage points in 6 months
• U.S.: October 2015 outlook estimated 2016-2017 annual rate of growth at 2.8 percent. April 2016 forecast is 2.4% and 2.5% respectively, for a cumulative two-years loss in growth terms of 0.72 percentage points
• Euro area: the comatose of growth were supposed to eek out GDP expansion of 1.6 and 1.7 percent in 2016-2017 under October 2015 forecast. April 2016 forecast suggests growth is expected to be 1.5% and 1.6%. The region remains the weakest advanced economy after Japan
• Japan is now completely, officially dead-zone for growth. In October 2015, IMF was forecasting growth of 1% in 2016 and 0.4% in 2017. That was bad? Now the forecast is for 0.5% and -0.1% respectively. Cumulated loss in Japan’s real GDP over 2016-2017 is 1.005 percentage points.
• Brazil: Following 3.8 contraction in 2015 is now expected to produce another 3.8 contraction in real GDP in 2016 before returning to 0.00 percent growth in 2017. Contrast this with October WEO forecast for 2016 growth at -1% and 2017 forecast for growth of +2.3% and you have two-years cumulated loss in real GDP of a whooping 5.08 percentage points.
• Russia: projections for 2016-2017 growth published in October 2015 were at -0.6% and 1% respectively. New projections are -1.8% and +0.8%, implying a cumulative loss in real GDP outlook for 2016-2017 of 1.41 percentage points.
• India: The only country covered by today’s update with no revisions to October 2015 forecasts. IMF still expects the country economy to expand 7.5% per annum in both 2016 and 2017
• China: China is the only country with an upgrade for forecasts for both 2016 and 2017 compared to both January 2016 and October 2016 IMF releases. Chinese economy is now forecast to grow 6.5% and 6.2% in 2016 and 2017, compared to October 2015 forecast of 6.3% and 6.0%.

Beyond growth forecasts, IMF also revised its forecasts for World Trade Volumes. In October 2015, the Fund projected World Growth to expand at 4.1% and 4.6% y/y in 2016 and 2017. April 2016 update sees this growth falling to 3.1% and 3.8%, respectively. And this is without accounting for poor prices performance.

In short, World economy’s trip through the Deadville (that started around 2011) is running swimmingly:

Meanwhile, as IMF notes, “financial risks prominent, together with geopolitical shocks, political discord”. In other words,we are one shock away from a disaster.

IMF response to this is: "The current diminished outlook calls for an immediate, proactive response… To support global growth, …there is a need for a more potent policy mix—a three-pronged policy approach based on structural, fiscal, and monetary policies.” In other words, what IMF thinks the world needs is:

1. More private & financial debt shoved into the system via Central Banks
2. More deficit spending to boost Government debt levels for the sake of ‘jobs creation’, and
3. More tax ‘rebalancing’ to make sure you don’t feel too wealthy from (1) and (2) above, whilst those who do get wealthy from (1) and (2) - aka banks, institutional investors, crony state-connected contractors - can continue to enjoy tax holidays.

In addition, of course, the fabled IMF ‘structural reforms’ are supposed to benefit the World Economy by making sure that labour income does not get any growth any time soon. Because, you know, someone (labour earners) has to suffer if someone (banks & investment markets) were to party a bit harder… for sustainability sake.

IMF grafts this idiocy of an advice onto partially realistic analysis of underlying risks to global growth:

• “The recovery is hampered by weak demand, partly held down by unresolved crisis legacies, as well as unfavorable demographics and low productivity growth. In the United States, ..domestic demand will be supported by strengthening balance sheets, no further fiscal drag, and an improving housing market. These forces are expected to offset the drag to net exports coming from a strong dollar and weaker manufacturing.” One wonders if the IMF noticed rising debt levels in households (car loans, student loans) or U.S. corporates, or indeed the U.S. Government debt dynamics
• “In the euro area, low investment, high unemployment, and weak balance sheets weigh on growth…” You can’t but wonder if the IMF actually is capable of seeing households of Europe as still being somewhat economically alive.

But the Fund does see incoming risks rising: “In the current environment of weak growth, risks to the outlook are now more pronounced. These include:

• A return of financial turmoil, impairing confidence. For instance, an additional bout of exchange rate depreciations in emerging economies could further worsen corporate balance sheets, and a sharp decline in capital inflows could force a rapid compression of domestic demand. [Note: nothing about Western Banks being effectively zombified by capital requirements uncertainty, corporate over-leveraging, still weighted down by poor quality assets, etc]
• A sharper slowdown in China than currently projected could have strong international spillovers through trade, commodity prices, and confidence, and lead to a more generalized slowdown in the global economy. 
• Shocks of a noneconomic origin—related to geopolitical conflicts, political discord, terrorism, refugee flows, or global epidemics—loom over some countries and regions and, if left unchecked, could have significant spillovers on global economic activity.”

The key point, however, is that with currently excessively leveraged Central Banks’ balance sheets and with interest rates being effectively at zero, any of the above (and other, unmentioned by the IMF) shocks can derail the entire wedding of the ugly groom with an unsightly bride that politicians around the world call ‘the ongoing recovery’. And that point is only a sub-text to the IMF latest update. It should have been the front page of it.

So before anyone noticed, almost a 1,000 rate cuts around the world later, and roughly USD20 trillion in various asset purchasing programmes around the globe, trillions in bad assets work-outs and tens of trillions in Government and corporate debt uplifts, we are still where we were: at a point of system fragility being so acute, even the half-blind moles of IMF spotting the shine of the incoming train.

9/4/15: Expresso on IMF's WEO Update: Secular Stagnation is Here

Portugal's Expresso on IMF's 'secular stagnation' evidence via April 2015 WEO Update (Chapter 3): http://expresso.sapo.pt/a-receita-do-fmi-mais-infraestruturas-mais-inovacao-mais-produtividade=f918917. With my comments...

My view in full:

IMF findings on potential and long-term growth trends in the advanced economies published as a part of the April 2015 WEO update confirm what we have already known for some time: the ongoing economic growth slowdown is not only structural in natural, but is permanent, in economic terms.

More importantly, however, the IMF study shows that the structural slowdown in growth has started prior to the onset of the Global Financial Crisis and has been concentrated, in terms of drivers, in demographics of ageing, leading to decline in investment, and a fall off in the growth of the total factor productivity as advanced economies continued to exhaust growth along the technological frontier.

In simple terms, this confirms the thesis of the secular stagnation, especially as formulated by Robert J. Gordon (see http://trueeconomics.blogspot.ie/2012/08/2882012-challenging-constant-growth.html).

From my point of view, the study documents one key trend: the trend of increasingly lower contribution of the human capital to growth over the period of 2001-2007 in the presence of slower, but still, relatively sustained growth contribution from employment.

This shows that during the pre-crisis boom, much of economic growth was derived not from intensive margin (technological progress and linking of technology to greater labour productivity) but from extensive margin (increased supply of physical capital and asset bubbles).

In the future, this imbalance in growth will require significant policy corrections in order to restore human capital growth to 2001-2003 levels. Absent these highly disruptive policy reforms (covering taxation systems, provision and distribution of key public services, restructuring of enterprise management systems etc), the world will find itself at the tail end of technological growth frontier, with low rates of return to technology and innovation and, as the result, permanently lower growth in the advanced economies.

7/4/15: IMF WEO on Global Investment Slump: Part 2: It's Demand, Not Supply ..

IMF released Chapter 4 of the April 2015 World Economic Outlook update. The chapter covers the issue of lagging growth in private investment (http://www.imf.org/external/pubs/ft/weo/2015/01/pdf/c4.pdf).

IMF findings focus on 5 questions:

1. "Is there a global slump in private investment?"
2. "Is the sharp slump in advanced economy private investment due just to weakness in housing, or is it broader?"
3. "How much of the slump in business investment reflects weakness in economic activity?"
4. "Which businesses have cut back more on investment? What does this imply about which channels—beyond output—have been relevant in explaining weak investment?"
5. "Is there a disconnect between financial markets and firms’ investment decisions?"

I covered chapter’s main findings for questions 1-2 in the earlier post here: http://trueeconomics.blogspot.ie/2015/04/7415-imf-weo-on-global-investment-slump.html

Now, onto the remaining questions and the core conclusions:

Q3: "The overall weakness in economic activity since the crisis appears to be the primary restraint on business investment in the advanced economies. In surveys, businesses often cite low demand as the dominant factor. Historical precedent indicates that business investment has deviated little, if at all, from what could be expected given the weakness in economic activity in recent years. …Although the proximate cause of lower firm investment appears to be weak economic activity, this itself is due to many factors. And it is worth acknowledging that, as explained in Chapter 3 [of the WEO], a large share of the output loss compared with pre-crisis trends can now be seen as permanent."

Here's a handy chart showing as much:

Figure 4.6. Real Business Investment and Output Relative to Forecasts: Historical Recessions versus Global Financial Crisis (Percent deviation from forecasts in the year of recession, unless noted otherwise; years on x-axis, unless noted otherwise)

Q4: "Beyond weak economic activity, there is some evidence that financial constraints and policy uncertainty play an independent role in retarding investment in some economies, including euro area economies with high borrowing spreads during the 2010–11 sovereign debt crisis. …In particular, firms in sectors that rely more on external funds, such as pharmaceuticals, have seen a larger fall in investment than other firms since the crisis. This finding is consistent with the view that a weak financial system and weak firm balance sheets have constrained investment. Regarding the effect of uncertainty, firms whose stock prices typically respond more to measures of aggregate uncertainty have cut back more on investment in recent years, even after the role of weak sales is accounted for."

Here is an interesting set of charts documenting that financial and policy factors played more significant role in depressing investment in the euro area 'peripheral' states:

Figure 4.10. Selected Euro Area Economies: Accelerator Model—Role of Financial Constraints and Policy Uncertainty (Log index).

Note: in Ireland's case, financial constraints (quality of firms' balance sheets) is the only explanatory factor beyond demand side of the economy for investment collapse in 2013-present, as uncertainty (blue line) strongly diverged from the actual investment dynamics.


Q5: "Finally, regarding the apparent disconnect between buoyant stock market performance and relatively restrained investment growth in some economies, the chapter finds that this too is not unusual. In line with much existing research, it finds that the relationship between market valuations and business investment is positive but weak. Nevertheless, there is some evidence that stock market performance is a leading indicator of future investment, implying that if stock markets remain buoyant, business investment could pick up."

Conclusions

• So IMF finds no need for any systemic the supply-side adjustments on capital/credit side.
• It finds no imbalances in the capital markets and finds that demand is the main driver for collapse in investment. 

Where is the need for more 'integration' of the capital markets that the EU is pushing forward as the main tool for addressing low investment levels? Where is the need for more bank credit to support investment? Ah, right, nowhere to be seen…

Meanwhile, the IMF does note the role of debt overhang (legacy debts) in corporate sector as one of the drivers for the current investment slump. "Although this chapter does not further investigate the separate roles of weak firm balance sheets and impaired credit supply, a growing number of studies do so and suggest that both channels have been relevant." In particular, "For example, Kalemli-Ozcan, Laeven, and Moreno (forthcoming) investigate the separate roles of weak corporate balance sheets, corporate debt overhang, and weak bank balance sheets in hindering investment in Europe in recent years using a firm-level data set on small and medium-sized enterprises in which each firm is matched to its bank. They find that all three of these factors have inhibited investment in small firms but that corporate debt overhang (defined by the long-term debt-to-earnings ratio) has been the most
important."

Thus, once again, how likely is it that low cost and abundant credit supply unleashed onto SMEs - as our policymakers in Ireland and the EU are dreaming day after day - will be able to repair investment collapse? Err… not likely.

7/4/15: IMF WEO on Global Investment Slump: Part 1: It's Private Sector Issue..

IMF released Chapter 4 of the April 2015 World Economic Outlook update. The chapter covers the issue of lagging growth in private investment.

Titled "PRIVATE INVESTMENT: WHAT’S THE HOLDUP?", IMF paper starts with a simple, yet revealing summary:
"Private fixed investment in advanced economies contracted sharply during the global financial crisis, and there has been little recovery since. Investment has generally slowed more gradually in the rest of the world. Although housing investment fell especially sharply during the crisis, business investment accounts for the bulk of the slump, and the overriding factor holding it back has been the overall weakness of economic activity. In some countries, other contributing factors include financial constraints and policy uncertainty. These findings suggest that addressing the general weakness in economic activity is crucial for restoring growth in private investment."

So the key message is simple: investment contraction is not driven primarily by the failures of the financial system, but rather by the weak growth - a structural, systemic slowdown in growth. Full text available here: http://www.imf.org/external/pubs/ft/weo/2015/01/pdf/c4.pdf

Let's take a closer look at IMF findings that focus on 5 questions:

1. "Is there a global slump in private investment?"
2. "Is the sharp slump in advanced economy private investment due just to weakness in housing, or is it broader?"
3. "How much of the slump in business investment reflects weakness in economic activity?"
4. "Which businesses have cut back more on investment? What does this imply about which channels—beyond output—have been relevant in explaining weak investment?"
5. "Is there a disconnect between financial markets and firms’ investment decisions?"

The chapter’s main findings are as follows (in this post, I will cover questions 1-2 with remaining questions addressed in the follow up post):


Q1: "The sharp contraction in private investment during the crisis, and the subsequent weak recovery, have primarily been a phenomenon of the advanced economies." Across advanced economies, "private investment has declined by an average of 25 percent since the crisis compared with pre-crisis forecasts, and there has been little recovery. In contrast, private investment in emerging market and developing economies has gradually slowed in recent years, following a boom in the early to mid-2000s."

Figure 4.1. Real Private Investment (Log index, 1990 = 0)

Q2: "The investment slump in the advanced economies has been broad based. Though the contraction has been sharpest in the private residential (housing) sector, nonresidential (business) investment—which is a much larger share of total investment—accounts for the bulk (more than two-thirds) of the slump. There is little sign of recovery toward pre-crisis investment trends in either sector."

Figure 4.2. Real Private Investment, 2008–14 (Average percent deviation from pre-crisis forecasts)

Spot Ireland in this…

And per broad spread of contraction, see next:

Figure 4.3. Categories of Real Fixed Investment (Log index, 1990 = 0)

But here's an interesting chart breaking down investment contraction by public v private investment sources:

Figure 4.4. Decomposition of the Investment Slump, 2008–14 (Average percent deviation from spring 2007 forecasts)

This, sort of, flies in the face of those arguing that Government investment should be the driver for growth, as it shows that public investment contraction had at most a mild negative impact on some euro area states (Ireland is included in the above under "Selected euro area").


Next post will cover Questions 3-5 and provide top-level conclusions.

23/1/2015: Russian Economy Growth Downgrades

On top of downgrades by the rating agencies, Russia also got downgraded by the host of international agencies - in terms of country growth prospects for 2015-2016. The IMF downgrade took 2015-2016 forecast for growth of 0.5% and 1.5% for 2015 and 2016 respectively published in October 2014 down to a contraction of -3.0% in 2015 and -1.0% in 2016. The Fund estimates 2014 GDP growth of 0.6% for the full year and Q4 2014 growth of zero percent compared to Q4 2013. Not bad for the economy going though a massive, multi-dimensional crisis. But a poor outlook for 2015-2016. IMF estimates are based on assumed oil price (full-year average weighted of 3 spot prices) at below USD60 but above USD55 (see http://blog-imfdirect.imf.org/2014/12/22/seven-questions-about-the-recent-oil-price-slump/), so closer to USD57.

The World Bank outlook, released on January 14th is a bit less gloomy when it comes to 2016. Per World Bank, "sustained low oil prices will weaken activity in exporting countries. For example, the Russian economy is projected to contract by 2.9 percent in 2015, getting barely back into positive territory in 2016 with growth expected at 0.1 percent." World Bank oil price assumption is USD66 per bbl.

EBRD notes that "Geopolitical risks from the Ukraine/Russia crisis remain significant, although they are contained for the time being." According to the bank, "Russia is projected to slip into recession, with GDP contracting by close to 5 per cent."  On more detailed assessment, EBRD says that: "In Russia, lower oil prices have compounded the effect of deep-seated structural problems, increased uncertainty and low investor confidence, along with the increasing impact of economic sanctions imposed since March 2014. In the first three quarters of 2014 investment continued to decline, consumption growth decelerated to below 1 per cent, and imports dropped by 6 per cent in real terms. Capital outflows more than doubled to an estimated US$ 151 billion in 2014. As a result, the rouble has lost almost half of its value in 2014 vis-à-vis the US dollar and Russia lost about a quarter of its international reserves, ending the year at around US$ 380 billion (including the less liquid National Welfare Fund). Markets were particularly shaken in late November/early December 2014, and the central bank had to raise its policy rate to 17 per cent to stem pressure on the currency. The government provided additional capital to a number of banks, temporarily relaxed certain prudential requirements for banks, and introduced measures to increase the supply on the foreign exchange markets by state-owned companies and put in place additional incentives for de-offshorisation."

An interesting footnote to the analysis is covering remittances from Russia. "Remittances from Russia to Central Asia and the EEC continued to decline (see Chart below). Partial data for the fourth quarter in 2014 suggest that the decline is likely to have accelerated in recent months, entering two-digit percentage rate territory, as the Russian economy weakened and the sharp drop in the value of the rouble reduced the US dollar (and also local currency) value of the remitted earnings. Lower remittances inflows will affect consumption adversely and likely add to downward pressures on a number of currencies in EEC and Central Asia, which also face reduced export demand and investment flows from Russia."

Crucially, EBRD forecasts also reflect downgrades on September 2014 outlook. EBRD now estimates 2014 growth to be at 0.4% (more gloomy than IMF estimate and down on 9.6% estimate at the end of Q3 2014), with a contraction of 4.8% in 2015, which represents a downgrade of 4.6 percentage points from September forecast. EBRD oil price assumption is around USD57-59 per bbl.

Chart below summarises unemployment trend 2013-2014:

21/1/2015: Global Trade Indicators Flashing Red

Two very interesting charts reflecting upon the same macroeconomic reality: world trade is slowing down. Big time…

First, IMF revisions of the global trade growth rates forecasts for 2015 - now at their lowest in 12 months (chart courtesy of the @zerohedge):

And next, Baltic Dry Index series printing 753,000 currently, a level consistent with depths of 2009 crisis and 2012-2013 slump (chart courtesy of @Schuldensuehner) :

All in, the above highlights the powerless nature of large scale advanced economies' QE measures when it comes to reigniting global demand.

23/1/2014: Remember that 'upbeat' IMF Growth Outlook?..

A quick note on the IMF update to the World Economic Outlook, released earlier this week. Here are some charts showing core forecasts progressions for growth and other global economy's performance metrics, with brief comments from myself.

The core point in the below is where does one exactly find the 'good news' relating to the IMF upgrading growth conditions expectations? The answer is that, contrary to media reports, the upgrades evaporate when once compares January 2013 forecasts against January 2014 ones, although there are some improvements in comparative for October 2013 against January 2014 forecasts. Materially, however, the upgrades are minor.

First for Advanced Economies:

The above chart shows evolution of real GDP growth for 2013 from the most recent forecast (January 2013) to the latest estimate (January 2014). The notable feature of this is the deterioration in underlying economic conditions over 2013, with forecast from January 2013 overestimating expected outrun for Global Economy growth and for all major advanced economies, save Spain, Japan and the UK. In case of Spain, forecast and outrun differ in terms of shallower expected decline in real GDP now expected for Spanish economy, compared to January 2013 forecast. In the case of Japan and the UK, the difference in higher estimated growth rates compared to forecast.

Moving on to 2014 forecasts for real GDP growth:

Much has been said in the media on foot of the IMF upgrade of its forecasts for global growth for 2014. This analysis is solely based on the comparing IMF outlook published in October 2013 against the forecast published this month. However, looking at January 2013 forecast against January 2014 forecast shows that the IMF outlook for the global economy has deteriorated since a year ago, from 2014 real GDP growth forecast of 4.1% to 3.7%. The same applies to all major advanced economies, save Germany, Italy, Japan and the UK.

Another important note here is that in the case of Italy and Germany, the difference between January 2013 and January 2014 forecasts is well within the margin of error. And that for the Advanced Economies as a whole, the forecast between two dates has not moved at all.

Thus, overall, the news analysis of 'greater optimism' from the IMF with respect to growth is really unwarranted - there is very little significant change to the upside in the IMF latest outlook.

Things are a little better for 2015 outlook:

However, we only have two points for comparing these forecasts: October 2013 and January 2014, so the above analysis (12 months span between forecasts) is not really available. Nonetheless, there is a significant marking up of global growth expectations between two forecast dates (from 2.9% to 3.9%), and  small downgrade in Advanced Economies growth forecast from 2.5% to 2.3%.

In addition, only Spain and the UK received a significant (statistically) growth upgrade, with the Euro area, Germany and Italy upgrades being within the margin of error.

The matters are actually far worse for the Emerging and Developing economies. 2014 forecasts are shown below:

With exception of Sub-Saharan Africa, all other major emerging and developing economies and regions have been downgraded in January 2014 forecast compared to January 2013 forecast.

When it comes to 2015 forecasts: there are more upgrades to growth forecasts:

But none - save for Developing Asia, China and MENA - are within statistically meaningful range.

The really devastating - the thesis of 'improved IMF outlook' - evidence comes from looking at the IMF forecast for Global Growth (controlling for FX rates):

Summary of the above chart is simple and ugly:

• Lower growth estimates for 2013
• Lower growth forecast in 2014, compared to the forecast published a year ago
• Lower growth forecast in 2015

And now, recall the 'salvation by trade' argument for Europe and Ireland? The 'exports-led recovery' story? Here are IMF latest forecasts for global trade volumes growth, and for imports by the advanced economies (AE) and emerging and developing markets (EM & developing):

Summary of the above chart is also simple and ugly:

• Lower trade growth in 2014 and 2015
• Lower imports growth in Advanced Economies in 2014 and 2015
• Lower imports growth in EMs in 2014 and 2015

So basic question is: Who will be buying all the exports that are supposed to grow across all European states?.. Martians?

16/7/2012: IMF downgrades growth prospects for 2012-2013

A notably interesting, if worrying, World Economic Outlook update from the IMF today. Titled “New Setbacks, Further Policy Action Needed” the document sounds several key warnings:

• In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness.
• Financial market and sovereign stress in the euro area periphery have ratcheted up, close to end-2011 levels.
• Growth in a number of major emerging market economies has been lower than forecast. …these developments will only result in a minor setback to the global outlook, with global growth at 3.5 percent in 2012 and 3.9 percent in 2013, marginally lower than in the April 2012 World Economic Outlook.
• These forecasts, however, are predicated on two important assumptions: that there will be sufficient policy action to allow financial conditions in the euro area periphery to ease gradually and that recent policy easing in emerging market economies will gain traction.
• Clearly, downside risks continue to loom large, importantly reflecting risks of delayed or insufficient policy action. In Europe, the measures announced at the European Union (EU) leaders’ summit in June are steps in the right direction.
•  The very recent, renewed deterioration of sovereign debt markets underscores that timely implementation of these measures, together with further progress on banking and fiscal union, must be a priority.
•  In the United States, avoiding the fiscal cliff, promptly raising the debt ceiling, and developing a medium-term fiscal plan are of the essence. In emerging market economies, policymakers should be ready to cope with trade declines and the high volatility of capital flows.

Some growth forecasts snapshots of the IMF update for 2012 and 2013:

• US gets downgraded on growth for both years by 0.1% from 2.1% in April 2012 to 2.0 in July 2012, and for 2013 from 2.4% to 2.3%.
• Meanwhile, Euro zone gets no change in 2012 forecast (at -0.3%) and a downgrade by -0.2% to 0.7% for 2013 forecast.
•  Let’s recall that Eurozone is Ireland’s ‘hope’ and ‘engine for growth’ according to our Government. And it is expected to perform markedly worse than any other advanced region in both 2012 and 2013. 
•  Note that the most ‘dynamic’ large euro zone economy – Germany – is now expected to grow by a ridiculously low 1.4% in 2013 on top of an absurdly low 1.0% in 2012.
• Elsewhere, China and India both got seriously downgraded in terms of growth prospects for 2012 and 2013 compared to IMF forecasts 3 months ago.

Chart below shows some monetary and banking sides of the euro crisis.

“Overall, global growth is projected to moderate to 3.5 percent in 2012 and 3.9 percent in 2013, some 0.1 and 0.2 percentage point, respectively, lower than forecast in the April 2012 WEO…

Growth in advanced economies is projected to expand by 1.4 percent in 2012 and 1.9 percent in 2013, a downward revision of 0.2 percentage point for 2013 relative to the April 2012 WEO. The downward revision mostly reflects weaker activity in the euro area, especially in the periphery economies, where the dampening effects from uncertainty and tighter financial conditions will be strongest.”

“Growth in emerging and developing economies will moderate to 5.6 percent in 2012 before picking up to 5.9 percent in 2013, a downward revision of 0.1 and 0.2 percentage point in 2012 and 2013, respectively, relative to the April 2012 WEO… Growth is projected to remain relatively weaker than in 2011 in regions connected more closely with the euro area (Central and Eastern Europe in particular).”