At least Abe and Kuroda have the IMF convinced.


The International Monetary Fund (IMF) has raised its GDP growth forecasts for Japan for both 2013 and 2014 by 0.3% and 0.7% respectively, to 1.6% and 1.4%. This is cause for some reflection.

The IMF is clearly buying into the idea that Japan can somehow autonomously pull itself up by its own hair, but also that it can do so in the short term, i.e. 2013-2014. This proposition becomes even more staggering when one considers that this new position on the part of the IMF comes to light in a publication that actually lowers global growth forecasts. The global growth forecast for 2013 is lowered by 0.2% to 3.3% and the growth forecast for 2014 is rather conspicuously held steady at 4.0%. The forecasts for China are lowered by 0.1% and 0.3% respectively, which still leaves the absolute growth figures at 8% and 8.2%.

Below is presented the IMF’s outlook for global growth, illustrated using a map of the world:


Europe is obviously the problem here (seemingly on par with Iran, which is suffering from massive international trade embargos). In a way, that is a measure of the stress the European economies are currently undergoing. Perhaps also note the fact that there is no gradient red colours for degrees of negative growth in the IMF’s ‘visualisation vocabulary’, in the same way that there appears to be no detailed plan for how to deal with negative growth in the PIIGS (Portugal, Italy, Ireland, Greece, Spain). So far, the knee-jerk reaction from the IMF has been to literally throw more money at the problem, and clearly this is not working.

The next chart illustrates the back-drop for the downgrade of growth forecasts.


This is looking pretty dire, and one suspects that there might be more downgrades to growth forecasts yet to come. Precisely how Japan is meant to be able to buck this trend is a bit of a mystery, considering how important global trade is for its economy. Notice also how global stock markets (indicated in red by the MSCI World index) seems to be high on liquidity, and not too worried about the deteriorating fundamentals.

Regarding Japan, IMF chief Christine Lagarde was quoted of saying that “…the huge monetary stimulus plan unveiled by Japan… will help to boost global growth at a time when the outlook is already starting to improve.” So in other words, whilst the IMF is lowering the growth forecast for the rest of the world and raising it for Japan, they also take the position that Japan is actually now helping the rest of the world grow. Quite something. It makes one wonder what the new forecasts would have been like if Japan had not announced its monetary stimulus package.

One can’t help suspect that IMF forecasts are a bit like the forecasts produced by the OBR (Office for Budget Responsibility) in the UK. Notionally, it is an independent entity designed to keep the government on the straight and narrow with regards to its fiscal policy and discipline, but in reality it has every incentive to ‘play along’ with the government’s overly rosy forecasts for economic growth, simply because doubts about economic growth tends to result in an actual impact on the economy, as the economic actors become more cautious with their spending and investment. If perpetuated, the effect becomes self-reinforcing and circular. In other words, there is a serious ‘moral hazard’ issue at play here.

We have expressed similar views about statements made by BoJ governor Kuroda, and questioned whether or not he and other politicians and bureaucrats are being blatantly disingenuous. This is not entirely unlikely, when one remembers that the Prime Minister of Luxembourg, Jean-Claude Juncker, when caught out trying to deny that there had indeed been an emergency meeting on Greece in March 2011, was quoted as saying: “When it becomes serious, you have to lie.”


Juncker and Lagarde conferring.


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