Incredibly, almost as a reminder of where financial power resides in this day and age, the International Monetary Fund (IMF) released its forecasts at the World Economic Forum’s 50th annual meeting in Davos.
Although the IMF revised its global economic growth prognosis slightly downwards from its October 2019 forecast, it still offers the most optimistic prospect of 3.3 percent growth in 2020. The World Bank’s forecast of 2.5 percent – identical to the United Nations (UN) estimate – is the lowest, with the OECD’s at 2.9 percent.
The IMF justified its optimism by improved market sentiments following the Phase One US-China Trade Deal and diminished fears of a ‘no-deal Brexit’. Goldman Sachs describes these developments as ‘A Break in the Clouds’, forecasting global growth at 3.4 percent in 2020, while Morgan Stanley sees ‘Calmer Waters Ahead’, expecting 3.2 percent in 2020 and 3.5 percent in 2021.
Perils of ‘talking up’
It is not unusual for these organisations to be optimistic: after all, they do not want to be seen as naysayers, or prophets of doom, especially if their pronouncements are later denounced as self-fulfilling prophecies.
But ‘talking up the economy’ can have grave consequences, as with the 2008-2009 global financial crisis (GFC). Then, the IMF revised its forecast upward in July 2007, a month before the US ‘subprime’ mortgage crisis morphed into the worst global downturn since the Great Depression of the 1930s.
Meanwhile, the OECD was confident that any US ‘soft-landing’ would be offset by robust European economic performance. Such forecasts fostered a false and ultimately dangerous sense of invulnerability and complacence before the storm broke.
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