| Too Good Too Soon |
22 September 2003
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IMF Overly Optimistic
The IMF has put out its forecast for the world's economy in 2004, and while there are few surprises, the report merits attention because it establishes what the consensus is. Then, in the coming months when this consensus is proved by the facts to have been misguided, everyone will be at the same starting point.
In the developed world, the US will have about 4% growth according to the IMF, which is what Vice-President Cheney gave as the White House figure a couple of weeks ago. This is probably accurate, but there are two issues that the IMF underplays -- excessive (by American standards) energy prices and the money pit of Iraq. If the Bush Administration insists on tax cuts, the federal deficit will eventually strangle the recovery as interest rates rise.
The IMF is in the ballpark, it seems, on Germany with no growth seen in 2003 and 1.5% in 2004, but that could be too optimistic. This is, of course, a great gift to anti-Euro forces in Britain, vindicates those in Sweden, and may give new EU states reason for worry. Meanwhile, Japan is likely to grow 2% this year and 1.4% next, and, again the IMF is too upbeat.
In the developing nations, East Asia is expected to soar (led by South Korea, Taiwan, and China), the Mid-East will again over-rely on oil, and Africa's economic future relies on fewer wars and better weather. South America is on target for 3.2% growth, but with the Cancun round failing, this is the region whose export-led chances at growth are harmed most.
The IMF says global economic growth for 2003 will be 3.2%, and 4.1% for 2004. Knock off about 0.5% from each, and the predictions are about right.
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