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IMF cuts growth outlook, warns on euro zone, Japan
Topic Started: 8 Oct 2014, 11:18 AM (412 Views)
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IMF cuts growth outlook, warns on euro zone, Japan

October 8, 2014 - 6:49AM

The International Monetary Fund cut its global economic growth forecasts for the third time this year on Tuesday, warning of weaker growth in core euro zone countries, Japan and big emerging markets like Brazil.

In its flagship World Economic Outlook report, the Washington-based lender cut its global growth expectations to 3.3 per cent for this year and 3.8 per cent for next year. In July it had expected growth of 3.4 per cent in 2014 and 4 per cent in 2015.

The IMF has now cut its current-year growth forecasts nine out of 12 times in the last three years as it consistently overestimated how quickly richer countries would be able to pull free from high debt and unemployment in the wake of the 2007-2009 global financial crisis.

It also lowered its expectations for longer-term potential growth, something its chief economist Olivier Blanchard called "the force from the future."

"You have these forces from the past, the forces from the anticipated future ... and I think that explains the sequence of revisions that we've had," Blanchard said in an interview.

The IMF again urged countries to carry out an array of structural reforms, such as improving labor market policies, fighting tax evasion and raising infrastructure spending, to avoid the risk of economic stagnation.

With interest rates already near rock-bottom in many advanced economies, it is harder to boost demand, Blanchard said, echoing the concerns of "secular stagnation" raised by former US Treasury Secretary Lawrence Summers.

"On whether we'll be able to ... increase demand enough to get to potential output, I think we don't know yet," Blanchard said at a news conference. "It may be difficult."

The Fund's gloomy projections set the stage for a gathering of the world's top economic policymakers in Washington this week.

While richer countries like Britain and the United States are seeing stronger expansions, the IMF downgraded forecasts for the three biggest economies in the euro zone currency bloc - Germany, France and Italy - and said it was essential advanced economies maintain monetary stimulus.

It also lowered growth projections for Japan and Brazil, among others. The IMF said potential growth in emerging markets is now 1.5 per centage points lower than what it foresaw in 2011.

"There is a risk that the recovery in the euro area could stall, that demand could weaken further, and that low inflation could turn into deflation," Blanchard said in a foreword to the report. "Should such a scenario play out, it would be the major issue confronting the world economy."

The IMF now sees a 30 per cent chance of the euro zone slipping into deflation over the next year, and nearly a 40 per cent probability the currency bloc could enter recession.

Read more: http://www.smh.com.au/business/markets/imf-cuts-growth-outlook-warns-on-euro-zone-japan-20141008-10rmtz.html
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It always amazes me how economic forecasts are all generally on the upside only to be later downgraded. There is a belief in economic circles that revert to normal long term growth will always occur in a 2-3 year time frame.
Only a rat can win a rat race.

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Will the IMF get it right this time?

Alan Kohler

At the same time as lowering its forecast for growth and raising the probability of a global recession from 20 to 33 per cent, the IMF has published a bracing examination of its failures.

Chief economist Olivier Blanchard assigned a couple of his economists, Rupa Duttagupta and Thomas Helbling, to report on why he and his team keep getting it wrong.

Specifically, the IMF has been way too optimistic on global growth every year since 2010 – by an average of 0.6 per cent a year. In 2010 global growth was 5.4 per cent and has declined to 3.3 per cent, which has come as a complete surprise to the IMF.

The analysis shows that IMF got its forecasts for developing countries most wrong and it didn’t predict the severity of the downturn in Europe. The growth shortfalls have been partly explained by lack of growth in trading partners and partly by forecast errors about domestic investment.

So how much weight should we put on the IMF team’s latest attack of pessimism? Well, at least they are diligent and honest, and in any case, grains of salt should always be applied to forecasts, especially about the future. It's the analysis that matters.

The IMF’s official global growth forecast for 2014 is now 3.3 per cent, down from 3.5 per cent in April. Growth is expected to increase to 3.8 per cent next year, 0.2 per cent less than its April forecast.

But as Olivier Blanchard wrote in his blog: “This number hides, however, very different evolutions. Some countries have recovered or nearly recovered. But others are still struggling.”

The US and UK are “leaving the financial crisis behind” and achieving decent growth. Japan is growing but high public debt raises challenges.

For Europe, the IMF has doubled its one-year ahead recession risk to nearly 40 per cent and the probability of deflation 30 per cent.

And this was immediately seen last night in a 4 per cent drop in Germany’s industrial production in August, its biggest fall in five years.

France and Italy are already contracting. The only bright spot for Europe is the devaluation of the currency, which has fallen 9 per cent against the US dollar since May.

Despite the deterioration in Germany’s economy, there is no sign yet that the Merkel Government is rethinking its formula for economic success in the Eurozone of fiscal rectitude and structural reform, but others certainly are. France and Italy have both revised their deficit reduction targets and the unions and the political left are mounting staunch resistance to any reforms.

Germany’s unit wage costs remain well below those of the rest of Europe, thanks largely to its lower house prices, but while the lower exchange rate is helping as well, weak demand both in Europe and China is crushing German exports.

The IMF raises three key risks to its outlook, of which a stalling of the recovery in the euro area is one. Says Blanchard: “This is not our baseline, as we believe fundamentals are slowly improving, but, were it to happen, it would clearly be the major issue confronting the world economy.”

The other two risks are complacent financial markets (“policymakers should be on the lookout”) and geopolitical risks, which are not having much impact at the moment, but “clearly, the risk that they do so in the future is there, and could affect the world economy in a major way”.

The IMF has also included an update on global housing markets in last night’s World Economic Outlook.

In short, it says there are two speeds: “rebounded” and “recovering” (a euphemism for falling, it seems):

Graph for Will the IMF get it right this time?Click to enlarge

Australia, of course, is in the “rebounded” group, but the short paragraph of commentary on our housing market is unperturbed:

“The rise in prices is concentrated in Sydney, Melbourne and Perth. It has not been accompanied by an overall increase in leverage. Credit growth is moderate, and many households continue to pay down debt.”

In fact, it is clear from reading the commentary on the other countries whose housing markets have rebounded, that the IMF seems to be about the least worried about Australia’s.

Read more: http://www.businessspectator.com.au/article/2014/10/8/economy/will-imf-get-it-right-time
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Another bunch of so called experts who don't have the slightest clue and are always talking it up ,only then, to have to talk it down further which is in fact another talk up because it will be revised down again.
Eventually revised down to zero then to negative, even with rates at zero for six years, just like the US, there iws no improvement just continual lies and talking up the failng situtaion.

There is no recovery in the Euro, just as there is no recovery in the US.

The reason there is no recovery in either, is because the government wont let it recover. For it to recover, it needs to correct, and the government wont let it correct either. For it to correct, you need to have interest rates at a more balanced level, so everything can balance out, but again, they wont let things balance out. The reason they wont is because all the balance has been placed on house prices over the last forty years, instead of the actual real economy , and every measure has been made to inflate them and debt flowing into them. Over these forty or so years, that constant extra flow of money being diverted into rising house prices and the growing debt levels that have gone along with it,not to mention the length of loan terms increaing, and its just more and more being robbed from the economy. Its basically been a massive debt spiral over decades, until is simply became completely unsustsinable to the point the global financial correction came knocking at our front door in 2008. And what was our answer to being unable to pay the debt we already had......borrow more....

So with everything being directed more and more at housing over the decades and away from the economy, the balance in favour of housing has destroyed the overall economy( real jobs or services people pay money for or too) as the balance has become so far out whack, instead of letting it rebalance or correct , they tipped the balance in favour of debt and house prices even further, Instead of doing the right thing and trying to correct it earlier.

To let it correct or rebalance now, would mean rising rates, but they know the whole thing will simply collapse as the balance would shift right away from the debt to maintain it as they can't afford higher rates. Greed and stupidity catch up in the long run, the long run was good, buts now over.

So the correction they should of let happen long ago, the rebalance , was not done. They wont do it of their own accord because they know the end result. So it will eventually be forced upon them when they are unaware owing trillions of dollars with still no way or means of ever repaying it.

So now all this debt and money into housing has destroyed the very jobs that were to pay for it and support it, both now and for probably the many decades the balance was sent out of whack. The whole thing was nothing more than a vicious debt cycle decade after decade, has finally run its course, run out of puff, is simply beyhond anything close to sustainble and is now collapsing.

Until there is a proper correction or rebalance, meaning raising rates, there will be no proper recovery.They know that there is no recovering from this complete stuff up, not on any level of their current quality of life, not even close, and are all still trying desperately to stave it off six years later.

No rocket science was involved here, just the facts.
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