Another Slow Year for the Global Economy
Despite having whittled down its global growth projections repeatedly over the last year, the IMF continues to insist – as it has, with almost banal predictability, for the last seven years – that next year will be better. But it is almost certainly wrong yet again.
WASHINGTON, DC – Last April, the International Monetary Fund projected that the world economy would grow by 3.5% in 2015. In the ensuing months, that forecast was steadily whittled down, reaching 3.1% in October. But the IMF continues to insist – as it has, with almost banal predictability, for the last seven years – that next year will be better. But it is almost certainly wrong yet again.
For starters, world trade is growing at an anemic annual rate of 2%, compared to 8% from 2003 to 2007. Whereas trade growth during those heady years far exceeded that of world GDP, which averaged 4.5%, lately, trade and GDP growth rates have been about the same. Even if GDP growth outstrips growth in trade this year, it will likely amount to no more than 2.7%.
The question is why. According to Christina and David Romer of the University of California, Berkeley, the aftershocks of modern financial crises – that is, since World War II – fade after 2-3 years. The Harvard economists Carmen Reinhart and Kenneth Rogoff say that it takes five years for a country to dig itself out of a financial crisis. And, indeed, the financial dislocations of 2007-2008 have largely receded. So what accounts for the sluggish economic recovery?