A False Spring at the Spring Meetings?
The IMF is optimistic about the world economy's growth prospects over the next two years. But the Fund is taking too much comfort in the stabilization of economic conditions: beneath the headline numbers, there is little evidence that underlying problems have been resolved.
WASHINGTON, DC – Every spring, international bureaucrats flock to Washington, DC, as reliably as swallows to Capistrano, for the annual meetings of the International Monetary Fund and the World Bank, where they exchange information about their local economies and policy prospects. Because these officials attend multiple events over the course of the week, an echo chamber develops, from which a general perception of the state of the global economy emerges. Policymaking around the world is then influenced by that perception.
This time round, the sense was positive. According to IMF staff, as reported in their World Economic Outlook, real GDP should expand by about 2% in advanced economies this year and next. This will pull the unemployment rate below 6%, not much different from its level before the 2008 financial crisis. Deflation or unwelcome disinflation is now seen only in the rearview mirror, as consumer price inflation settles around 2%, the goal of most major central banks.
But, as any resident of New England knows, April showers do not always bring May flowers; sometimes they bring only more and colder showers. Not to rain on officials’ parade, but we fear that they are taking too much comfort in the stabilization of economic conditions. Beneath the headline numbers, there is little evidence that underlying problems have been resolved.