Bloomberg News

Godot Seen Showing Up Sooner Than Stronger Global Growth

July 21, 2014

IMF Managing Director Christine Lagarde

IMF Managing Director Christine Lagarde said July 6, “The global economy is gathering speed, though the pace may be a bit less than we previously predicted.” Photographer: Andrew Harrer/Bloomberg

IMF could well stand for “It’s Moderating Forecasts” -- so often has the International Monetary Fund downgraded the outlook for world economic growth.

The Washington-based lender is poised this week to cut its estimate for global expansion in 2014 from 3.6 percent in April. That was a reduction from the 3.7 percent it anticipated in January and the 4.1 percent in January 2013.

It’s not been alone. Ralph Solveen, an economist at Commerzbank AG in Frankfurt, highlighted the reconsideration of the world economy with a July 18 report entitled: “Stronger Global Growth -- Waiting for Godot.”

JPMorgan Chase & Co. economists led by Bruce Kasman have found that they’ve regularly revised down their weekly forecasts since 2011. At HSBC Holdings Plc, chief economist Stephen King bemoans an “optimism bias” among economists underestimating the fallout from the financial crisis.

And yet they haven’t shaken the affliction.

While acknowledging a sense of deja vu, Kasman’s team is betting on global acceleration to 3.3 percent this quarter and then to 3.7 percent in 2015. That bet hinges on shocks such as the euro area’s debt turmoil having passed and companies in developed economies picking up investments and hiring.

Solveen predicts expansion of just 3.5 percent next year from 3.1 percent in 2014 and links most of that to a bounce in the U.S.

Disappointment Seen

“Hopes in the financial markets which rest on stronger global growth may be disappointed,” he said in his report, keeping bond yields in check and allowing gains in equities.

He fears industrial production has lost momentum and consumption is slowing in emerging markets.

Geopolitical flares from Ukraine to Gaza are hurting investor sentiment; defaults in China’s corporate-debt market and the woes of Portugal’s Banco Espirito Santo SA are fanning financial-stability concerns.

Central banks are largely out of firepower and global monetary policy has actually tightened this year as Brazil and India raised interest rates. While the European Central Bank is issuing fresh loans to banks, Solveen said they may do little for growth. coming just as the Fed completes its bond buying.

“The global economy is gathering speed, though the pace may be a bit less than we previously predicted,” IMF Managing Director Christine Lagarde said July 6.

To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net Andrew Atkinson


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