Some days, when the mood strikes, I randomly give readers a window into what I suppose counts as “editorial strategy” on my end. Today is such a day.
Nobody cares about the IMF’s growth projections. In most cases, stories amenable to flashy headlines translate to heightened reader interest, but in my experience, forecasts from the IMF and the World Bank are an exception.
You can spice it up (so to speak) however you like, and still, nobody will care. Even the IMF itself took a stab at creating some interest with an ostensibly compelling cover image. The front page of the Fund’s website on Tuesday featured a picture of a business man in a suit, carrying a briefcase and an umbrella standing on some rocks in choppy surf. “Uncertainty Grips Markets as Optimism Wanes,” the title of the article read.
The piece, which summarized the Fund’s latest Global Financial Stability Report, was presumably meant to accentuate Gita Gopinath’s new forecasts. “Compared to our July forecast, the global growth projection for 2021 has been revised down marginally to 5.9% and is unchanged for 2022 at 4.9%,” she wrote, noting that although the headline revisions are “modest” they “mask large downgrades for some countries.”
The featured quote from Gopinath’s own editorial reads, “The dangerous divergence in economic prospects across countries remains a major concern.”
She’s right. And “dangerous divergence” makes for great headlines. Just ask Bloomberg, which availed itself as follows, “IMF Trims View on Growth Rebound as ‘Dangerous Divergence’ Seen.”
What is this “dangerous divergence” you ask? Well, it’s not a mystery is it? Poor countries are poor and rich ones are rich, which means there’s a glaring divide between vaccine access and the capacity to pull various policy levers to support the economy. The figure (below) makes the point.
So, for advanced economies, aggregate output will likely exceed the pre-pandemic trend by 0.9% in 2024. Everyone else isn’t so lucky.
Gopinath delivered the usual lament for a fractured, stratified world. “Divergences are a consequence of the ‘great vaccine divide’ and large disparities in policy support,” she wrote, adding that although nearly two-thirds of the population in advanced economies is fully vaccinated, 96% of the population in low-income countries hasn’t been inoculated.
That really is an astounding statistic. More colloquially, you could just say that most of the advanced world is protected while virtually no one in poor countries is.
Needless to say, the policy calculus is far different in emerging markets than it is in the developed world. “Many emerging market and developing economies, faced with tighter financing conditions and a greater risk of de-anchoring inflation expectations, are withdrawing policy support more quickly despite larger shortfalls in output,” Gopinath went on to lament, adding that “food prices have increased the most in low-income countries where food insecurity is most acute, adding to the burdens of poorer households and raising the risk of social unrest.”
Food prices continued to rise last month on the UN’s gauge (figure below). The stage is set for the Fed to once again take the blame for a food crisis, just as they did during Bernanke’s tenure.
Gopinath ventured the usual high-minded, well-meaning list of policy prescriptions which exactly no one will implement unless it’s convenient, politically or otherwise.
She got it right on the task facing central bankers. “Monetary policy will need to walk a fine line between tackling inflation and financial risks and supporting the economic recovery,” Gopinath wrote.
If you ask the IMF, headline inflation will fall back to pre-pandemic levels by mid-2022. In other words, it’s “transitory.” The Fund did note that its forecasts are set against a macro environment characterized by “high uncertainty.” That’s an understatment.
Oh, and Gopinath gently urged policymakers and politicians to “avoid unnecessary policy accidents that roil financial markets and set back the global recovery.”
She mentioned a prospective “disorderly” meltdown in China’s property sector and, of course, “failure to lift the US debt ceiling in a timely fashion.”
Now if only anyone were listening.