The IMF nudges up its forecast for global growth

  • Sumo

In recent years the fund’s forecasts have proved over-optimistic

APRIL is the cruellest month, breeding lilacs out of the dead land, and, in Washington, chirpy forecasts from the IMF that often prove a bit too chirpy. On April 18th the fund released its semi-annual World Economic Outlook (WEO), raising its forecast for global growth in 2017 to 3.5%.

Growth forecasts for the emerging world have not changed. The IMF’s global optimism is based instead on hopes of increased growth in the rich world. The fund takes a rosy view of the American economy, citing both high levels of consumer confidence and Donald Trump’s plans for more government spending. In Britain the IMF now reckons GDP will grow by 2.0% in 2017, up from earlier estimates of 1.5% (issued in January) and 1.1% (last October). The IMF has also raised its forecasts for Japan and the euro area.

Snipers point out that IMF forecasts have been far from perfect. Some glitches are excusable. In the spring of 1990, it predicted that Kuwait’s economy would grow by 0.8% that year. It actually fell by 26%. The IMF’s model did not allow for an Iraqi invasion. But other errors are less easily explained: between 1990 and 2007, the IMF’s spring forecasts underestimated global growth in 13 of the 18 years, in large part because it failed to foresee the spectacular rise of China.

however, the IMF has had to revise down its forecasts over time every year since 2010 (see chart). The fund’s spring forecasts for the coming year have turned out to be over-optimistic in the past three years.

Christine Lagarde, the IMF’s boss, recently conceded that economic growth in the past six years has been “disappointing”, but held firm in her belief that the world economy was turning. Hence the positive revision to its global GDP forecast—albeit by just a tenth of a percentage point.

The global economy may still falter for a number of reasons. Ms Lagarde worries the rich world will suffer “self-inflicted wounds” from poor policy choices, notably on trade. Political uncertainty abounds. Just hours before the IMF released the WEO came the surprising news of an imminent election in Britain. The known unknowns hardly help, either. Mr Trump’s fiscal policies, for example, are far from firm plans—Maurice Obstfeld, the IMF’s chief economist, calls them “a work in progress”.

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