IMF to Cut Global Growth Forecasts in Another Blow to Confidence

July 6, 2012 by Douglas A. McIntyre

An extraordinary number of actions have been taken recently that show a rising belief the global economy is in trouble. First among these are the rate actions taken by the European Central Bank, Bank of England and Chinese officials to make money more affordable. Another is a recent International Monetary Fund warning that U.S. economic growth could dip to 1% next year if political gridlock continues. Another is a new set of tentative plans by Europe to immediately help some of its nations that have fallen into deep recessions.

Each of these pieces of news or decisions has served to undermine confidence that a global economic recovery is under way. That confidence was hit hard again today when IMF Managing Director Christine Lagarde said that her organization plans to drop its forecasts of world growth when it issues its new outlook. “The global growth outlook will be somewhat less than we anticipated just three months ago,” Lagarde said. “And even that lower projection will depend on the right policy actions being taken.” Three months is not a very long time, especially when it comes to an analysis of the prospect of the economy across the entire world.

However, Lagarde’s comments show how quickly the world economy has deteriorated. And growth was halting even at the start of this year, when a good deal of optimism about prospects started to take root. The negative change has been based on trouble in Europe. It is not that simple. The economy in the United States has been dragged down by housing and a lack of job additions at companies that laid people off in the most recent recession. An American recovery seems in some large part to be an illusion. It is easy to see why many economists would incorrectly accept it, with small signals that included temporary improvements in the jobless rate and consumer spending.

The IMF will downgrade its forecast of global growth rates, but the revision will reflect what many experts already know. There never was much of a recovery.

Douglas A. McIntyre

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