The International Monetary Fund has made the cautiously optimistic prediction that the global recession is coming to an end. Given the organization's history of poor predictions, that just might mean the world should prepare for even worse times ahead.
In a story that flew largely under the news radar last week, the IMF updated its World Economic Outlook to conclude that the world economy is slowly but gradually recovering from its lengthy recession.
The global economy, it found, would contract roughly 1.4 percent this year -- a bit worse than the 1.3 percent decline expected in April. But by 2010, the IMF expects to see economic growth of 2.5 percent, up from the 1.9 percent predicted in April.
It's worth noting that in the IMF's 2007 annual meeting, it was largely predicted that markets -- which, at that point were beginning their dramatic freeze -- would thaw out by the next calendar year in 2008. They didn't.
In 2003, the General Accounting Office put out a report declaring that IMF's primary forecasting tool, its "World Economic Outlook," had a poor track record of forecasting global financial crises. The IMF, the congressional auditors said, had only been able to predict 15 of the 134 recessions that had occurred in 87 developing countries from 1991 through 2001 successfully. That makes for an 11 percent success rate.
In October 2000, the IMF forecasted economic growth in all major regions of the world, "led by the continued strength of the US economy."
What actually followed was the first corresponding downturn in the world economy since the mid-1970s.
In April 2001, the fund reduced its prediction from 4.2 percent growth for the world economy to 3.7 percent growth. It would reduce it again to 2.6 percent in the fall of 2001. And it would stand by that number even after the terrorist attacks of 9/11. But by October 2001 it was acknowledging that, at the very least, the United State's economy was going to shrink in the final six months of that year.
In 1998, the IMF was infamously the target of a host of recriminations for failing to anticipate a burgeoning crisis in the Asian markets, prompting numerous complaints from officials who said they lost billions because of overly-optimistic prognoses.
Following the 1998 crisis in Asia, there was a discussion within the U.S. -- from members of Congress to former Secretary of State George Schultz -- to scrap the fund altogether. Internationally, criticism of the IMF has been even more prevalent.
That said, the IMF has, on occasion, gotten it right. In 2005, it insisted that England would have to cut spending or raise taxes by 12 billion pounds in order to fill a hole in the budget. Then-Chancellor Gordon Brown publicly scolded the global financial watchdog. But, for the most part, the IMF's gloomy predictions proved correct.
And while the fund's history of misfires, as well as the inherent difficulty in predicting economic trends, leads one to take a skeptical view of its current prediction, it should be noted that the IMF is not alone in this outlook. Nouriel Roubini, who predicted the present crisis in 2006 and whose bearish outlook earned him the title of "Dr. Doom," said on Thursday that he expects the U.S. economy to emerge from the recession toward the end of 2009. This, increasingly, is becoming the economic forecasting conventional wisdom.
"You can bash the IMF for its predictions," explained Rob Shapiro, formerly undersecretary of commerce under President Clinton, and co-founder and chairman of Sonecon, LLC. "But the issue here, is that lots of people are upgrading their forecast for 2010 relative to the forecast four months ago. The forecast remain very low though. A couple months ago the forecasts were very, very dire everywhere... and now they are just dismal."