EYE ON THE IMF

The IMF released its updated “World Economic Outlook Update” today, with revised global projections for 2009 and 2010. In it, IMF Chief Economist Olivier Blanchard states bluntly, “we now expect the global economy to come to a virtual halt.” While our macro view is not as bearish as Blanchard’s holistically, we questions if some estimates are padded, in particular India.

A few main call-outs from the Report: World growth is projected to fall to 0.5% in 2009, the lowest rate since WWII, a downward revision of about 1.7% from the November 2008 WEO update, with a gradual recovery projected in 2010 to 3%. Advanced economies are expected to suffer the deepest recession with a 2% contraction this year. Inflation is expected to fall to 0.25% in 2009 from 3.5 % in 2008, before edging up to 0.75% in 2010. Emerging and developing economies are expected to slow from 6.25% in 2008 to 3.25% in 2009, with inflation in these countries expected to decline from 9.5% in 2008 to 5.75% in 2009 and 5% in 2010.

We took special note of the projections for India: at 5.1% the IMF projection for growth is well below the 6.5 - 7% that the ministry of Industry has been hyping in the press, but still strikes us as very optimistic. We re-shorted the Indian equity market via IFN today and continue to think that growth could slow more than many expect there.

The graph below taken from IMF data presents country specific, commodity, and import/export forecasts for 2009 juxtaposed with predictions from their last report in November.

Matthew Hedrick
Analyst

Andrew Barber
Director