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The extremely optimistic assumptions on which both of the
recent International Monetary Fund’s ‘World Economic Update’ and ‘Global Financial Stability Report’ are based are such that, given all the attendant circumstances, I do not place much weight on either of them. Here is a summary of what the reports have to say and why I have come to that conclusion. Words: 625
So says Ian R. Campbell (www.StockResearchPortal.com) in paraphrased excerpts from one of the components of his subscription service* which is presented here with his kind permission for posting on www.munKNEE.com (Your Key to Making Money!). This paragraph must be included in any article re-posting to avoid copyright infringement.
Campbell goes on to say, in part:
The IMF’s World Economic Outlook Update
The IMF, in its World Economic Outlook Update, says:
- “the past three months have shown signs of weakness in the global recovery” (rephrased);
- subject to two assumptions, developments in the past three months will “only result in a minor setback to the global outlook, with global growth at 3.5% in 2012 and 3.9% in 2013, marginally lower than (our) April 2012 (outlook)”. The two assumptions made by the IMF when reaching that conclusion are:
- “there will be sufficient policy action to allow financial conditions in the euro area periphery to ease gradually”, and
- “recent policy easing in emerging market economies will gain traction”.
- “there will be sufficient policy action to allow financial conditions in the euro area periphery to ease gradually”, and
As I see things,…given all the attendant circumstances…, I do not place much weight on their Outlook.
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The IMF’s Global Financial Stability Report
The…report begins by saying “risks to financial stability have increased since (our) April, 2012 report”, and focuses on what the IMF sees as:
- the importance of “timely implementation of the recently agreed measures” announced two weeks ago at the European Union leaders’ summit meeting then held in Brussels. The IMF Report makes no mention of that agreement being ‘conditional’, and by chance the IMF Report was released on the same day the German Constitutional Court announced it was postponing its decision on the constitutionality of the European Stability Mechanismuntil mid-September; and,
- uncertain U.S. fiscal outlook and federal debt ceiling issues that “present a latent risk to financial stability”.
An underlying dependence on the European leaders summit agreement being implemented as ‘conditionally agreed’ and in a ‘timely manner’ both seem questionable to me.
Other IMF Statements
Concurrently, in yet another IMF statement, the IMF said that it was now forecasting improved fiscal deficits for Greece, but higher public debt:GDP numbers for this year and 2013 for Greece. This makes sense if the Greek government succeeds in enforcing meaningful austerity measures immediately if not sooner, and in circumstances of what appears to be Greece’s continuing drop in GDP.
Conclusion
I generally pay close attention to what is said by Christine Lagarde, the IMF Managing Director but, while I understand why the IMF can’t come out and say “nothing is happening fast, and as a result the world economic situation, particularly that of the Eurozone and the United States, is likely to continue to deteriorate“, I am less impressed with yesterday’s World Economic Update and Global Financial Stability Report than I am with the typical statements made by her.
Topical References:
- World Economic Outlook Update – New Setbacks, Further Policy Action Needed, from The International Monetary Fund, July 16, 2012 – important reading time 5 minutes (Executive Summary 1 minute);
- Global Financial Stability Report GFSR Market Update – Intense Financial Risks: Time for Action, from The International Monetary Fund, July 16, 2012 – important reading time 5 minutes (Executive Summary 1 minute);
- IMF raises its two-year forecast, from Ekathimerini, July 16, 2012 – reading time 1 minute;
- As IMF trims global growth outlook, Canada continues modest growth, from The Financial Post, Gordon Isfeld, July 16, 2012 – reading time 2 minutes; and
- IMF cuts global growth forecast, from The Financial Post, from Reuters, Lesley Wroughton, Gordon Isfeld, July 16, 2012 – reading time 2 minutes.
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Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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