The IMF continues to go all gloom and doom about the world with some Australian media outlets falling in behind that line in their reporting this morning. But they should have had a sense of proportion.
We will do much better than other advanced countries over the next year, some of whom are basket cases, according to the IMF’s forecasts.
There’s an element catch up in the Fund’s recent forecasts: it was projecting growth of 0.5% for the world this year in January, despite the obvious evidence of the collapse in demand in late 2008 staring it in the face. Will this one be any better?
It’s as though the Fund is making a bid for relevance after being marginalised for years and the only way to do it is to be gloomier than any other forecaster. Certainly its boss, Dominique Strauss-Kahn, has ambitions for the Fund to regain its central place in global economic discussions.
Its analysis of the banking and financial crash has been slow to evolve and the very pessimistic Global Financial Stability Report issued this week (but leaked last month) told us nothing that we already didn’t know — the world banking sector is in terrible trouble and the US remains in a state of denial about what has to happen to fix the problem.
The IMG forecast Australia to have slowing growth of -1.4% and unemployment peaking next year at 7.8%: it was an analysis that some media reports accepted as gospel and as indicating we will be doing it tougher than the rest of the world, which will contract by 1.3%. The difference is marginal.
(But the global forecast does include growth in China of an unchanged 6.5% and growth in several other emerging economies, such as India and the Middle East). However, a more valid comparison is comparing Australia to other advanced economies.
“Overall, the advanced economies are forecast to contract by 3.8 percent in 2009, with the US economy shrinking by 2.8 percent. Emerging and developing economies will see positive growth of 1.6 percent, bouncing back to 4.0 percent next year. Sub-Saharan Africa will remain in positive territory at 1.7 percent in 2009, recovering to 3.9 percent next year”, the IMF said.
The global regulator said the advanced countries growth fell 7.5% in the last quarter of 2008: Australia’s eased by 0.5%.
In fact excluding the eight major economies, Australia’s growth of -1.4% will be comfortably better than the minus 4.1% projected by the IMF for “Other Advanced Economies”. Not so bad after all.
And, as the Reserve Bank Governor said this week, Australia is well placed to ride through the recession because we have a stronger financial system that has not required capital bail outs from the central government. That should be remembered. It will differentiate us for the next few years as the other major economies struggle to generate growth with weak credit creation systems.