IMF Growth Forecasts: Missing the Mark So Far [Chart]
Will next week’s report be on target after 5 years of downward revisions?
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Projections on the global economic recovery have been overestimated by most policymakers and institutions for some time now. The International Monetary Fund (IMF) has been no exception to this fallacy.
Whether it is simple error, wishful thinking, or a complex system that is to blame, the economists at the IMF have now missed the mark for five years in a row on their global real GDP growth forecasts. After multiple revisions downward, their most recent January 2016 report finally estimated growth for this year to be a mediocre 3.4%.
Of course, no one expects economists to be anywhere near perfect. However, what is troubling in this instance is that all estimates have erred on the side of being overly optimistic. This makes it difficult for investors, businesses, and governments to ground their expectations and to manage their assets.
This upcoming week, the IMF will release their latest World Economic Outlook (WEO) report, summarizing key economic figures as well as their forecasted growth for 2016 and the years ahead.
Will they miss the mark again, or will their projections finally line up with economic realities?
In recent weeks, IMF head Christine Lagarde has hit the press circuit to possibly set expectations ahead of the new report’s release. In Frankfurt, she had this to say on April 5, potentially revealing some clues for us:
Overall, the global outlook has weakened further over the last six months — exacerbated by China’s relative slowdown, lower commodity prices, and the prospect of financial tightening for many countries. Emerging markets had largely driven the recovery and the expectation was that the advanced economies would pick up the ‘growth baton’ – That has not happened.
She went on to suggest that a strong U.S. dollar, high unemployment and shoddy balance sheets in Europe, and economic data from Japan have all reduced growth in key developed countries. Further, emerging markets such as China, Brazil, and Russia had all faced more challenges than expected, and that the Middle East’s growth got hammered by weak energy prices.
Meanwhile, Lagarde saw India, Indonesia, Malaysia, Philippines, Thailand, and Vietnam as bright spots.
Later in the speech, she pulled no punches on potential global risks, mentioning “high debt” as the first risk to making recovery progress:
For advanced economies, [risks] relate to longstanding crisis legacies — high debt, low inflation, low investment, low productivity, and, for some, high unemployment.
While Lagarde made it clear that there has been a “loss of momentum” and that the IMF is “on alert, not alarm”, this could be a clue that the reality is setting in for the IMF: a sustained, real recovery is not in the cards unless giant obstacles are overcome. We believe this could take a prolonged time to truly correct, or that it could eventually happen after a major reset to our financial and political systems.
Either way, for once it seems possible (though improbable), that the IMF may finally see things the same way.
The Top Google Searches Related to Investing in 2022
What was on investors’ minds in 2022? Discover the top Google searches and how the dominant trends played out in portfolios.
The Top Google Searches Related to Investing in 2022
It was a turbulent year for the markets in 2022, with geopolitical conflict, rising prices, and the labor market playing key roles. Which stories captured investors’ attention the most?
This infographic from New York Life Investments outlines the top Google searches related to investing in 2022, and offers a closer look at some of the trends.
Top Google Searches: Year in Review
We picked some of the top economic and investing stories that saw peak search interest in the U.S. each month, according to Google Trends.
|Month of Peak Interest||Search Term|
|February||Russian Stock Market|
|December||Interest Rate Forecast|
Data based on exact searches in the U.S. from December 26, 2021 to December 18, 2022.
Let’s look at each quarter in more detail, to see how these top Google searches were related to activity in the economy and investors’ portfolios.
The start of the year was marked by U.S. workers quitting their jobs in record numbers, and the effects of the Russia-Ukraine war. For instance, the price of crude oil skyrocketed after the war caused supply uncertainties. Early March’s peak of $125 per barrel was a 13-year high.
|Date||Closing Price of WTI Crude Oil
|January 2, 2022||$76|
|March 3, 2022||$125|
|December 29, 2022||$80|
While crude oil lost nearly all its gains by year-end, the energy sector in general performed well. In fact, the S&P 500 Energy Index gained 57% over the year compared to the S&P 500’s 19% loss.
The second quarter of 2022 saw abnormal house price growth, renewed interest in value investing, and a bitcoin crash. In particular, value investing performed much better than growth investing over the course of the year.
|Index||Price Return in 2022|
|S&P 500 Value Index||-7.4%|
|S&P 500 Growth Index||-30.1%|
Value stocks have typically outperformed during periods of rising rates, and 2022 was no exception.
The third quarter was defined by worries about a recession and inflation, along with interest in the rising U.S. dollar. In fact, the U.S. dollar gained against nearly every major currency.
|Currency||USD Appreciation Against Currency
(Dec 31 2020-Sep 30 2022)
Higher interest rates made the U.S. dollar more attractive to investors, since it meant they would get a higher return on their fixed income investments.
The end of the year was dominated by OPEC cutting oil production, high layoffs in the tech sector, and curiosity about the future of interest rates. The Federal Reserve’s December 2022 economic projections offer clues about the trajectory of the policy rate.
The Federal Reserve expects interest rates to peak in 2023, with rates to remain elevated above pre-pandemic levels for the foreseeable future.
The Top Google Searches to Come
After a year of volatility across asset classes, economic uncertainty remains. Which themes will become investors’ top Google searches in 2023?
Find out how New York Life Investments can help you make sense of market trends.
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