BackDoes IMF wear rose-tinted glasses?
IMF seems to be a natural optimist, in spite of all the worries about the risks to growth. Every year, its growth projections start off on an upbeat note, only to be slowly revised downwards
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Cast your eyes on the accompanying chart of world output growth projections from the International Monetary Fund (IMF). Notice how, every year, year after year, the numbers start off on an upbeat note, only to be slowly revised downwards.
This is not for a moment to underestimate the enormous difficulties involved in estimating world output growth. If it’s so hard to estimate earnings growth for companies, if national estimates of growth in gross domestic product (GDP) so often go awry, when there are raging debates, as in India, about whether they are measuring GDP properly, it is entirely possible for estimates of world output to go badly wrong.
But, as the chart shows, there’s a pattern to the IMF estimates. At the beginning of every year, it seems to think it’s a Brave New World, but disillusionment sets in slowly until, by the end of the year, it realizes the world is stuck in the same old rut. But another year comes and with it, hope stirs anew in IMF’s breast. It seems to be a natural optimist, in spite of all its worries about the risks to growth.
In January 2012, IMF’s World Economic Outlook predicted world output growth that year would be 3.9%. As the chart shows, it slowly revised that estimate down, until, by October 2013, with an emerging market crisis on its hands, it brought it down to 2.9%. IMF’s most recent database shows world GDP growth at constant prices in 2013 was 3.3%.
Similarly, estimates for world output growth for 2014 started off at 4.1%, only to be reworked down until it reached a nadir of 3.3% by October 2014. Growth according to IMF’s April 2016 database was 3.4%. The estimates for 2015 show a similar story and the database shows GDP growth for 2015 came in at 3.1%, well below the 3.9% initial projection. The world growth estimate for the current year is already lower by 50 basis points from the initial one made in January 2015. A basis point is 0.01%.
There is though a silver lining. The chart shows that the initial estimates of world output growth for each year are getting lower. It was 4.1% for 2014, 3.9% for 2015, 3.7% for 2016 and 3.6% for 2017. Perhaps, after years of disappointment, even IMF is shedding a bit of its optimism.
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