Friday, April 22, 2011
Just a quick note that the latest IMF World Economic Outlook is out, and has lots of interesting reading. In particular, there is a large chapter discussing oil market risks that I hope to write about at a later time when I've digested it a bit better.
For now, I just want to put up their forecast for world GDP growth (graph above - slowing slightly to something a little above the recent historical 4% average). They think the probability of an outright recession in the next two years is miniscule (their 90% envelope only goes down to about 2% growth by the end of 2012). Myself, I think the risks to the downside due to an oil shock are much higher than this. But then, last June I thought that the risks of deleveraging to the global economy were higher than the IMF was crediting, and in fact their projections to date were pretty close to reality. On the third hand, in that piece I also documented that the IMF had completely failed to recognize the impact of the housing/credit crash on the global economy until after it had happened. They correctly identified it as the largest risk to global growth, but didn't correctly anticipate that it would really happen.
I guess the picture is that the IMF will usually be about right except at major turning points, which they will fail to credit in advance. On the other side, even when one correctly foresees a turning point, it's very hard to predict the timing accurately and so very easy to end up crying wolf too often ahead of time.
At any rate, they recognize that oil prices are now the biggest risk to the downside:
It's just that they think there's a small (<<10%) risk of this inducing an actual recession. Time will tell.