Should the IMF be more optimistic?

The International Monetary Fund (IMF) is feeling bullish: it’s nudged up its 2017 global GDP growth forecast to 3.5% in its semi-annual World Economic Outlook. But this isn’t necessarily good news: the IMF’s forecasting record is mediocre.

In recent years, forecasts have been “a bit too chirpy”, as The Economist points out. Ever since 2010, in fact, it has had to revise down its forecasts every year. So its belief that the world economy is finally moving up a gear thanks to growing momentum in the developed world – the UK is now expected to expand by 2% this year, compared with a 1.1% forecast last October – will be taken with a pinch of salt.

Its good cheer of recent years could be a result of overcompensating for being too cautious in the 1990s and 2000s. Between 1990 and 2007, the spring forecasts underestimated global growth in 13 of the 18 years, “in large part because it failed to foresee the spectacular rise of China”. Given the IMF’s record, many investors may now be inclined to fret that it has neglected the threat of protectionism and the possibility that President Trump won’t be able to get a decent fiscal stimulus through Congress.