Last week the International Monetary Fund cut its global growth forecasts for both 2010 and 2011. That staid organization now expects growth will be 4.8% in 2010 and 4.2% in 2011. That familiar culprit, the European sovereign debt crisis, is primarily to blame for the downward revisions. The largest reduction in estimates was reserved for the United States with growth here expected to be 2.3% vs. earlier expectations 2.9%.
Analysis: Economists make their living by making estimates and they are just that, estimates; and they are often wrong. However, the IMF is one of the most conservative of all economic bodies on the planet. Because they actually invest funds in other countries, and overwhelmingly in the most troubled countries, they are extremely conservative. In other words, there is pretty strong evidence present that global growth is going to slow next year.
The authorities at the International Monetary Fund also warned that the financial sector in the most advanced economies remains fragile and sensitive. In other words, any external shocks to the system could be devastating.
All of that said, it is my intuition that the Great Recession is behind us. People and businesses are innovating. Things are stable even if they are not booming. Monetary policy is mostly rational so there is a low risk of an economic bubble resuscitating itself. Congress is in gridlock which means that hinky, non-productive debt spending will likely be kept to a minimum. The Iraq war effort is finally winding down. The war effort in Afghanistan, which is failing by any measure, is scheduled to end next year. All of this in combination will either free up or help to create additional capital for the economy. It is going to take time for the emotional shock, devastation and malaise to pass through the world’s population. But things are better now than they were last year, or the year before and most certainly better than in 2007 when everyone was in deep delusion.
Importance grade: 6; the IMF has basically affirmed what everyone already knew – it’s going to be a slog getting back to where we thought we were 3 years ago. Big deal, that was faux economic growth anyway. Let’s get down to business.
Jason
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