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Business/Finance See other Business/Finance Articles Title: IMF View of the Global Economy: Not a Pretty Picture IMF View of the Global Economy: Not a Pretty Picture Mike Larson | Tuesday, April 12, 2016 at 4:30 pm The International Monetary Fund (IMF) is taking the scalpel to its global growth forecast. Again. The international forecasting, advisory and lending group now expects the world economy to grow just 3.2% this year. That’s 0.2 percentage points less than it forecast in January. If you feel like you’ve seen this movie before, that’s because you have. This is the IMF’s fourth straight outlook cut in the past year. Regionally, the IMF cut its forecast for U.S. growth by 0.2 points to 2.4%. It lowered its outlook for the eurozone by 0.2 points to 1.5%. It slashed its projection for Japan by 0.5 points to 0.5%, and its forecast for the U.K. by 0.3 points to 1.9%. Chief Economist Maurice Obstfeld also seemed to wake up on the wrong side of the bed, judging from his language in the release. He warned that the world economy was reaching “stalling speed,” coping with “widespread secular stagnation,” facing a “return of financial turmoil” and a “self-confirming negative feedback loop,” and having “no longer much room for error.” The IMF slashes its global economic outlook. So clearly the IMF believes that seven-plus years of interest-rate cuts, ZIRP, NIRP, QE-infinity, currency devaluation, LTROs, TLTROs, and all the other monetary hocus-pocus has worked, right? Er … no. If it did, we wouldn’t continually get gloomy talk and downgrade after downgrade to their growth forecasts. Why isn’t any of that stuff working? Simple. We’re at the wrong point in the economic and credit cycle! Several years of easy-money policies have already inflated all the asset and behavior bubbles they can, and those bubbles simply can’t be pumped up anymore. We’ve reached – or actually, passed – the tipping point. Lenders don’t want to lend aggressively anymore because loan losses are rising, borrower credit quality is starting to deteriorate, and collateral values in sectors like autos and commercial real estate are beginning to fall. “Lenders don’t want to lend aggressively anymore because loan losses are rising.” Meanwhile, businesses don’t want to borrow aggressively because inventories are surging, sales are slumping and profits are hurting. And investors don’t want to gorge on more junk bonds or emerging-market debt or high-risk stocks because they’re nursing significant losses from past speculative bets. Or to put it another way, neither central bankers nor fiscal policymakers can make the sun shine past sunset, or rise three hours earlier. They can’t keep the tide from coming in or going out. And they can’t make the global economy grow forever without a cleansing, recessionary down cycle … no matter how hard they try or how much they may want to. The IMF’s latest downgrade only further confirms that view. So as an investor, you should ignore misleading comments and exhortations from politicians or policymakers. Instead, stay focused on the twists and turns in the credit and economic cycles – and how they can help you build wealth in a sustainable fashion. I will have lots more guidance on that topic in the days and weeks ahead, so stay tuned. Poster Comment: Links in text at source. Post Comment Private Reply Ignore Thread
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