Here is Stephen Roach's latest post on the IMF forecast. He is downside on both Asia and Europe (primarily Germany). I haven't got any models to do my forecasting for me, but my gut instincts as an economist tells me he may be right. After all what we're seeing are downwards revisions all round right now, so if anything the models have too much backward-looking bias.
The IMF has just slashed its estimate of world GDP growth in 2003 to 3.2% -- a cut of 0.5 percentage point from the 3.7% forecast of record made last September. The revisions were largely concentrated in the industrial world. The European prognosis was pared the most -- from 2.3% to 1.1%. But the IMF also lowered its numbers for the United States (from 2.6% to 2.1%) and Japan (from 1.1% to 0.8%). In the developing world, the IMF’s cuts were mainly evident in Latin America, where their 2003 estimates went from 3.0% to 1.5%. By contrast, in developing Asia, growth estimates were left unchanged at a vigorous 6.3%.
In official circles, a cut of 0.5 percentage point off an annual estimate for world GDP growth is a big deal. But, in my view, the IMF’s latest cuts aren’t nearly big enough. Our current -- and also downwardly revised -- forecast calls for world GDP growth of 2.4% in 2003. That’s fully 0.8 percentage points below the IMF’s just-released estimate. But it’s not only the numerical difference that matters; these forecasts each depict a very different character of the global economy. The IMF’s 3.2% global growth estimate portrays a decided subpar growth trajectory, with world GDP growth estimated to be 0.4 percentage point below its 3.6% longer-term (post-1970) trend. By contrast, our latest estimate takes the world economy technically into the recession zone -- just piercing the 2.5% growth threshold normally associated with global downturns. To be sure, neither forecast depicts any vigor in the world economy. But our view certainly emphasizes the perils that lurk on the downside.
The bulk of the difference between us and the IMF can be traceable to two areas of the world -- Asia ex Japan and Europe. In Asia, the IMF is still carrying a 6.0% growth estimate for 2003, well in excess of our downwardly revised 4.6% prognosis. With this region accounting for fully 26.3% of world GDP as measured on a purchasing-power-parity basis, the Asian forecast difference accounts for fully half the total gap between our view and the IMF’s for 2003. Not surprisingly, the IMF does not appear to have made any modifications of its Asian growth estimates to reflect the impact of SARS -- severe acute respiratory syndrome. By contrast, we recently knocked 0.4 percentage point off our 2003 Asian growth forecast to reflect a sharp SARS-related reduction in tourism in these tourist-intensive economies. With tourism, travel, entertainment, and a variety of other key service activities (i.e., retailing) having come to a virtual standstill in this once-resilient region, I am certain the IMF would have made a similar adjustment had they gone through their forecast update a couple of weeks later. Nevertheless, our pre-SARS view of Asia appears to have been somewhat weaker than the IMF’s -- mainly reflecting more cautious forecasts of the so-called newly industrialized economies (NIE) of Asia (Korea, Singapore, Hong Kong, and Taiwan). This difference appears traceable mainly to our heightened concerns over a more cyclical outcome for the global trade cycle -- a big deal for trade-intensive Asian NIEs.
For Europe, there is less of a disparity. Our latest forecast for 0.8% GDP growth in the euro area for 2003 is 0.3 percentage point below the IMF’s 1.1% forecast. The bulk of the difference shows up in Germany -- Europe’s largest economy, accounting for fully 28% of pan-regional GDP; our prognosis for “zero growth” in Germany this year is 0.5 percentage point below the official IMF outlook. While IMF can hardly be accused of having an upbeat view of Germany -- the industrial country it judges to be next in line for deflation after Japan -- it does appear to be somewhat more upbeat on the prospects for private consumption than we are. Subdued inflation is expected to provide a bit more of an assist to household purchasing power.
Source: Morgan Stanley Global Economic Forum
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