Yikes: IMF lowers global economic growth forecasts. (...Wait. Huh?)

Hold on a moment. Didn’t I just write that exact same headline, less than three months ago? …Yes, dear readers. Yes I did.

In April, the International Monetary Fund scaled back its global economic growth forecast for 2013 to 3.3 percent, down 0.2 percent from their January estimate, and held constant their 4 percent growth estimate for 2014. Now, the IMF is again scaling down both of their global estimates: 3.1 percent for 2013, and 3.8 percent for 2014. “Unexpectedly.” …While we’re on the subject, would anyone care to place bets on what the forecast might look like another few months from now?

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World economic growth will struggle to accelerate this year as a U.S. expansion weakens, China’s economy levels off and Europe’s recession deepens, the International Monetary Fund said.

Global growth will be 3.1 percent this year, unchanged from the 2012 rate, and less than the 3.3 percent forecast in April, the Washington-based fund said today, trimming its prediction for this year a fifth consecutive time. The IMF reduced its 2013 projection for the U.S. to 1.7 percent growth from 1.9 percent in April, while next year’s outlook was trimmed to 2.7 percent from 3 percent initially reported in April.

“Downside risks to global growth prospects still dominate,” the IMF said in an update to its World Economic Outlook. It cited “the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit, and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the U.S. leads to sustained capital flow reversals.”

The fund urged central banks in wealthy nations facing low inflation and economic slack to keep injecting stimulus until recovery is entrenched, saying rising longer-term interest rates have hurt emerging markets the most.

I can’t be the only one feeling like they’re taking crazy pills, can I? I’m still hoping (against hope) that our collective growth won’t sink any further, but what is the deal with these ostensibly esteemed economic institutions rarely-to-never failing to inflate the outlook of the world’s various economies, only to have to revise and contract their estimates a little later on? I realize that the collective and individual economies each have too many constantly, quickly moving parts and interactions that require updated considerations, but come on. As long as too many government the world over utterly fail to substantively reform their unsustainable debt and deficit habits, to improve their business climates through tax and regulatory reform, or to have any long-term success whatsoever at “injecting stimulus” and “creating” jobs, actual economic improvement is going to be rough going. The IMF’s report recommended that “policymakers everywhere need to increase efforts to ensure robust growth,” but maybe what they should actually do is just stop trying.

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One of the biggest drags is coming from the world’s largest currency bloc — the ailing eurozone that roundly refuses to even acknowledge the dissipation of the the contrived arrangement as an option for fixing their woes without pulling out their smelling salts. It doesn’t have to be this way.

The great fear is that to reintroduce a national currency, a country would have to forcibly redenominate private assets and liabilities in the process. For firms, households and investors, uncertainty about whether their euros will eventually be confiscated and replaced with a debased national currency could lead to capital flight, economic chaos and years of litigation, if not worse.

But there is an alternative to forced redenomination. Greece or any other country in the euro zone could easily reintroduce a national currency without generating the kind of financial and economic calamity envisioned so far—provided it got the mechanics right.

The key is to fix the initial amount of new currency to be issued while allowing the market to set the price at which the exchange takes place. In this scenario, the central bank would announce that it is willing to purchase euros from domestic banks, the Greek public and anyone else, using newly issued drachmas as payment. All such transactions would take place during a specified transition period and be entirely voluntary. This would not be an exercise in confiscation. …

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Duane Patterson 11:00 AM | December 26, 2024
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