IMF Forecasts Rebound from Global Economic Soft Patch

Monday, June 20, 2011

On June 17, the International Monetary Fund (IMF) predicted a rebound in global economic growth in the 2nd half of 2011 that should help to calm jittery equity investors. In an update to its World Economic Outlook, the IMF lowered only modestly its prior April forecast for 2011 GDP growth from 4.4% to a still-healthy 4.3%, and also predicted an acceleration in 2012 to 4.5%. The disparity in growth between the advanced economies (2012 GDP +2.6%) and the emerging and developing economies (2012 GDP +6.4%) is expected to continue.

For the U.S., the IMF anticipates anemic 2.5% growth in 2011 with only a slight bump to 2.7% in 2012. Nevertheless, Olivier Blanchard, the Fund’s Economic Counsellor, dismissed prospects of a retreat into a double-dip recession by labeling the soft patch as “a bump in the road rather than something more worrisome.”

The IMF also rejected negative economic scenarios for the leading emerging economies. Although rising inflation and subsequent restrictive central bank policies have spawned dire predictions of economic “hard landings,” the IMF expects continuing robust growth into 2013. China’s growth is pegged at 9.6% in 2011 and 9.5% in 2012, India at 8.2% and 7.8%, and Brazil at 4.1% and 3.6%.

Although optimistic, the IMF is hardly complacent. Their major concern, however, is not that the world’s leading economies will deteriorate on their own, but rather that governments and central banks will adopt ill-advised policies and abort a rebound.