The Limits of Economic Optimism

WASHINGTON, DC – As the annual spring meetings of the World Bank and the International Monetary Fund commence, the world’s economic future appears brighter than it has in some time. The international financial institutions, not to mention many private-sector actors, are projecting significantly faster growth this year than in 2016. Is their buoyant outlook warranted?

Until recently, most macroeconomic indicators were regularly leading to downgrades in growth projections. Now, the opposite seems to be happening. The IMF’s recent flagship report raised its projection for world GDP growth for 2017 from 3.4% to 3.5%, compared to the estimated rate of 3.1% for 2016.

Likewise, the multi-indicator Brookings – FT TIGER Index points to a “broad-based and stable” recovery. According to these projections – which are based on models, new data, and the judgment of the particular institution or forecaster – the United States, the United Kingdom, and Japan are contributing the most to the uptick in growth. India is also doing particularly well.

Deciphering these projections’ various components – from the new information to the forecasters’ hypotheses – would be a huge task. But, whatever reasons for optimism forecasters may have, there are also strong grounds for caution, especially in the medium and long term.