IMF Lowers Economic Outlook for 2015
In what appears to be standard routine these days, the International Monetary Fund (IMF) slashed its economic outlook for 2015. This would mark the fourth consecutive downward revision from the IMF, suggesting that China’s stock market crash has left a deep impact on the global economy.
To be clear, cutting growth estimates as time goes on is an established pattern at the IMF. Back in April, the IMF’s World Economic Outlook had predicted a global growth rate of 3.5% for 2015. (Source: World Economic Outlook: Uncertainty, Complex Forces Weigh on Global Growth, IMF, October 6, 2015.)
They now believe it will be closer to 3.1%.
Each issue of the World Economic Outlook (this is the fourth and last of 2015) has been progressively more pessimistic than the one that came before it. Many analysts take the IMF projections with a grain of salt after noticing how their optimism fades with time.
China’s failure to pivot from exports to consumption is a key factor in the IMF revision.
Earlier this year, China underwent a monumental stock market crash at precisely the wrong time. Chinese leaders have been trying to steer the economy away from its dependence on exports and towards consumption-led growth.
Suffice it to say, the stock market crash derailed those plans in the short term.
Yet the IMF did not downgrade China’s 2016 economic growth in their World Economic Outlook report. The IMF previously forecasted China’s economy would slow from 6.8% to 6.3% next year. They’ve held fast to that prediction.
In fact, the IMF didn’t even mention China’s stock market crash in the October edition of the WEO. But the footprint of China’s instability is visible across the board.
Using the signature coded language of policy wonks, the IMF writes that “while the growth slowdown in China is so far in line with forecasts, its cross-border repercussions appear larger than previously envisaged.”
In other words, things are going horribly wrong and we didn’t see it coming. The economic outlook for 2015 was repeatedly misread by the world’s foremost economic research department.
The closest thing to an admission of ignorance came from the IMF’s Chief Economist, Maurice Obstfeld.
“Downside risks to the world economy appear more pronounced than they did just a few months ago,” he said. “Six years after the world economy emerged from its broadest and deepest postwar recession, the holy grail of robust and synchronized global expansion remains elusive.”