The IMF factor - calling for the steepest global contraction in decades

The IMF makes very conflicting statements now for quite some time but has also developed to drop bombs of bad news at interesting points. I do not see a coincidence in their timing as they try to drive markets and basically my impression is they work on the bearish side. Sounds funny as we are in rough times as bad news are the dish of the day but the timing rather is always at interesting points . I have no doubt that they are part of the 'Club' as Martin Armstrong calls it and have a big interest to manoeuvre the things into their direction with one point being that they get the worlds central bank with not philanthropic motives.

By Bob Davis

The International Monetary Fund was slow to apply the word “recession” to the current global downturn, partly because it didn’t have a good definition (and partly because it didn’t want to spook markets and IMF members).

Informally, past IMF chief economists have called global growth lower than either 3% or 2.5% — depending on who was the chief economist — a recession. But that didn’t pass muster with Olivier Blanchard, the IMF’s current chief economist, who on Oct. 8, 2008 said “it is not useful to use the word ‘recession’ when the world is growing at 3%.”

At that time, that was the IMF’s forecast for 2009 global growth was 3%. Its latest forecast, released this morning, now forecasts a 1.3% contraction for this year. (It’s been a lousy year for forecasters all over the world.)

Now, IMF economists have cranked through the numbers and come up with a more precise way to measure global recessions: a decline in real per-capita world GDP, backed up by a look at other global macroeconomic indicators. Those indicators include industrial production, trade, capital flows, oil consumption and unemployment.

By that definition, this is the fourth global recession since World War II, and deepest by a long shot. The earlier recessions were in 1975, 1982 and 1991. All were one-year recessions when measured by purchasing power parity, which the IMF favors for global comparisons. Those stats take into account the different cost of goods and services in different countries — for instance, a haircut costs a lot less in Beijing than Boston. Looking at global GDP by the more traditional method using exchange rates, the 1991 recession lasted until 1993.

In 2009, the IMF estimates per-capita GDP will decline 2.5%, using purchasing power parity, compared to a 0.4% contraction, on average, during the three previous recessions. Industrial production, trade, capital flows and oil consumption in the 2009 recession will fall much more sharply than in the previous global recessions, while unemployment will increase more.

What about 2010? The IMF’s current forecast estimates a small per-capita GDP decline, when measured by market exchange rates, and a tiny increase when measured by purchasing power parity. By either of those measures — the IMF didn’t release forecasts for the other macroeconomic indicators it used in this exercise — the world will be hovering around recessionary territory next year too.