IMF missed 2009 recession why should it be trusted now?Posted on 08 July 2010 with 1 comment from readers
In July 2008 the IMF was still comfortably forecasting 3.8 per cent global growth for both 2008 and 2009. It was only right at the end of 2008 with a recession so obvious that a blind man in a snowstorm could spot it that the IMF called the horrible recession of 2009.
Why then should we pay any attention at all to the IMF forecast today when it says that the world does not face a double dip recession? They would only see it if it was about to hit them in the face.
IMF game playing
For the IMF is more about the politics of markets and the marketing of political influence than genuinely useful forecasts. Indeed, for investors the IMF is a dangerous body and likely to cause significant damage if you trust its word on the future.
Not every investment can be undone at a moment’s notice. Many are long or at least medium term commitments and cannot be unwound at the push of a button.
Beware the IMF’s complacency now – designed more to aid a recovery in the somewhat hubristic view that what the IMF says might actually dictate the outturn. Many more reliable market indicators are flashing red.
Japanese machine tool orders are down 10.4 per cent we hear today. The Baltic Dry Index is down 49 per cent in 28 days, the same trade indicator ignored two years ago. The venerable Dow Theory has confirmed a coming bear market for stocks through its transporation stock indicators.
Facts not forecasts
Better to trust the evidence seen in the markets than the self-serving prognostications of the IMF. Their policy seems to be to accentuate the positive until it is obvoiusly wrong and then correct their forecasts late in the day. Nifty PR perhaps, but useless forecasting.
Besides the global overview of growth is not much use either: that average hides wide variations in growth levels, so how things actually feel depend very much on where you happen to be sitting.
However, the IMF always has its get out clause, just in case it has to reverse direction later. So what do you make of the following: ‘Recent turbulence in financial markets – reflecting a drop in confidence about fiscal sustainability, policy responses, and future growth prospects – has cast a cloud over the outlook’. That could be a double dip, could it not?
And what did ArabianMoney say about the economic outlook two years ago. Well straight from the archive on this website: ‘That a serious downturn is coming in the world economy can hardly be doubted. High energy prices have turned a real estate crunch into a global slowdown, and with the banks already in trouble this could get a lot worse. Shipping reports point to a severe economic contraction in 12-18 months time and are usually an accurate leading indicator.’
That was when the IMF last issued an optimistic report!