The International Monetary Fund has hiked their 2010 global growth forecast to 4.6%, from 4.2% previously. Growth will continue at a 4.3% pace even in 2011, says the IMF, which given the dour mood of global markets would be great news. 4%+ global growth is decent relative to history.
Thing is, global growth will be skewed towards developing countries:
As always, these world growth rates hide a large difference between and within advanced and emerging and developing economies, with the United States expected to grow at about 3 ¼ per cent in 2010, the euro area at 1 per cent, Japan at close to 2 ½ per cent, and emerging and developing economies averaging about 6 ¾ per cent.
Thing is, the U.S. growth figure they forecast isn’t too bad either. Even in 2011, the IMF forecasts 2.9% U.S. GDP growth. Overall, the U.S. is expected to outperform most of its developed nation peers, even if unemployment remains high and government debt remains a concern.
Now of course the IMF could be wrong with their GDP forecasts, but if they are even roughly correct with their forecasts, then the world is far from ending as markets lately might have caused many investors to believe.
The main risk to the world economy right now, according to the IMF, is that current financial market turbulence could spill over into the real economy and dampen real economic activity. But otherwise, the report seems to judge recent market turmoil has undue.
Contagion to other regions is assumed to be limited and the disruption in capital flows to emerging and developing economies to be temporary. But there is a downside scenario: further deterioration in financial conditions could have a much greater adverse effect on global growth as a result of cross-country spillovers through financial and trade channels.
Given where many U.S. stocks are priced, ie. at historically low levels, the market doesn’t need a great economy, or even a good economy. It just needs to avoid a disastrous one. Even if the IMF is only two-third’s right, then the world is likely to keep chugging forward, even if slowly.
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