IMF risks raining on its own pretty good parade
Nobody would ever accuse the International Monetary Fund (IMF) of getting carried away.
Just when we are getting used to the notion of a synchronized global expansion, the lender feels it has to pad its upgraded forecasts with some dampeners. It’s almost as though there is too much good news. That’s a pity.
Muffling the good news under warnings and to-do lists risks contributing to the false notion that the modern economy is somehow broken. Growth is on a firmer and broader footing now than at any point since 2009. Is it perfect? No. But we should take it.
The IMF’s global forecast on Tuesday affirmed that strength. You would never know it from popular discourse.
At a global economic conference in India last week, some panellists at public discussions blamed poor world growth for India’s lagging performance. That kind of sloppy thinking could do real harm.
The IMF risks inadvertently fuelling that and giving credence to those merely seeking to wreck political systems under the guise of populism. In the case of India, there was a significant cut in growth estimates in this week’s numbers, in part because of a couple of one-offs linked to demonetization and the roll-out of a new tax system. There were a few other special cases, like the UK, which continues to deal with the fallout from last year’s Brexit vote.
They really are the exceptions to the worldwide trend. The global economy will expand 3.6% this year and 3.7% in 2018, up a tad from the lender’s previous estimate. (And remember: Those previous estimates were pretty rosy; the IMF sounded more upbeat earlier this year than it had for a while.)
The upswing is in its eighth year and looks pretty broad based. Japan and Europe—often seen as laggards—got an upgrade, as did China. That debt binge in China that everyone is so concerned about isn’t derailing things yet.
There are plenty of things that can spoil this scene: a sudden tightening of financial conditions, trade wars, actual wars, and that annoying political polarization fed by inequality. That polarization, by the way, could be aggravated by warnings that drown out the good news. It contributes to an unfounded sense of decline.
The IMF is right to include caveats along with its upgraded forecasts. Inflation and wages growth are too low for where they should be at this point. And a premature monetary tightening in Europe could stall the pleasant little rebound there. It has to be said, higher interest rates in Europe don’t seem to be in the cards. At the most, we are talking about a prolonged tapering of bond buying from the European Central Bank.
So there are plenty of dangers lurking in the undergrowth. But world growth looks pretty solid. I’ll take it. Bloomberg View