Fisher Investments Editorial Staff
Market Cycles, Emerging Markets

Lit Crit 101

By, 07/09/2010

Story Highlights:

  • The IMF's revised forecast called for higher growth in 2010, but a slightly slower 2011.
  • Emerging Markets got an extra lift, which bodes well for the global economy.
  • Even if 2011 is a little slower, growth should remain strong overall.
  • The IMF isn't the world's best predictor, so both years could be better than currently forecasted.


If you've been out of school a while, you probably thought your days of interpreting literature were over. Alas, those days are never over. The IMF's latest World Economic Outlook, released Thursday, requires a healthy dose of literary criticism. First, the report warns, "Downside risks have risen sharply amid renewed financial turbulence."  Uh oh! Yet, they said that, but revised the growth outlook up for most individual nations, regions, and the world overall.

What's the right read? While risk doubtlessly exists, the world's a lot healthier than people have presumed. Take 2010's global growth projection, which was revised up from April's 4.2% forecast to 4.6%. Emerging Markets' revisions were especially encouraging—Brazil's 1.6 percentage point increase to 7.1% is huge, and China's and India's bumps to 10.5% and 9.4% aren't too shabby. We've said for a while fast growth in developing countries will pull the world along too—not just by skewing the aggregate number with their gangbusters growth rates, but by increasing demand for goods from the developed world, lifting growth in those countries as well. Brighter forecasts for developing nations mean good things elsewhere.

Even the dimmer parts of the report carry some promise—like the eurozone forecast. It's easy to look at the unchanged 1% growth forecast this year and feel a little blue. But think about the widespread fear PIIGS would take down the European economy. An unchanged forecast for even slowish growth, in light of all that fear, is pretty good news.

The same can be said for the 2011 global forecast, which is still nicely positive despite the fears of a double-dip recession and talk of downside risks. Sure, growth is projected to taper off a bit, but that's perfectly normal and expected—economies never move in a straight line. Besides, slower growth is still growth—the IMF isn't forecasting a contraction, just a bit of a growth rate drop to 4.3%, which is still pretty darn good and well ahead of 2008 and 2009.

Keep in mind too, it's far from certain growth will slow in 2011. Next year is a ways off, and the forecast can easily be revised upward, just like it was this year. Fact is, the IMF isn't the world's best economic forecaster. Remember, in April 2009, they predicted a global contraction of -1.3% that year, but the decline was a far more benign -0.6%. In a world where a psychic octopus has a better hit rate, anything's possible. Plus, 2010 could easily end up even better than Thursday's revised forecast. The IMF typically errs on the side of caution, so we wouldn't be surprised by growth that surpassed even these estimates. Yes, some areas might still be slow, but overall, the world's in fine and improving economic shape.


*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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