There is a smokescreen around the IMF’s thinking on the world economy at its spring meetings in Washington this week.
Discussion of the UK’s slowing recovery is largely absent, presumably because of obvious political sensitivities as the country gears up for polling day.
Analysis of the situation in Europe is anodyne compared with previous years. The US, still suffering the after-effects of the financial crisis in the form of low business investment and faltering consumer spending, is given a clean bill of health.
The words of deep concern have been reserved for the developing world, which is dogged by falling commodity prices, low investment, corruption or all three.
Russia was described as a virtual basket case that will struggle to benefit from the lower value of the rouble. Brazil, which has suffered a severe drought and cut public spending to prevent spiralling debt, will suffer a recession this year.
Growth in south-east Asia will slow in response to China’s determination to restrict a rampant property market that has become a favoured investment vehicle for a newly rich Chinese middle class.
Like the western powers, China also gets the kid-glove treatment. Its forecast growth rate conforms largely to the official Beijing figures that most City analysts believe are a fiction.
Rather than the decline from 6.8% growth this year to 6.3% next year in the IMF’s latest forecasts, the figures could be closer to half. Diana Choyleva of Lombard Street Research, a renowned China expert, said growth last year was 4.4%, well below the IMF’s 7.4%.
In her most recent report she said: “Dire data out of China are competing head-on with the Greek political drama as the most destabilising factor for the global economy and financial markets.”
According to the IMF neither the China slowdown nor the Greek crisis pose much of a threat to the global economy.
Apart from the deterioration in developing countries, it highlights volatile markets as a cause for concern. The ups and downs of currencies on international exchanges make it difficult to plan. Commodity prices, which have tumbled over the last year, can be a matter of life and death in the developing world while in the west they have become another reason businesses refuse to invest.
But there are deeper worries about the world economy that the IMF merely skates over.
In recent years there has been a huge rise in savings across the globe and a commensurate increase in borrowing.
That is because investing savings in business ventures would put the money at risk, so most want to lend the money – they get a guaranteed stream of interest payments and the likelihood, especially in the case of government debt, they will get their money back.
Former US Federal Reserve chairman Ben Bernanke worries about the way these forces are distorting decision-making by governments and businesses. Former US Treasury secretary Larry Summers, who argues that high debts and low wages have brought about a long period of stagnation, also asks deeper questions about why growth remains, in the IMF’s words, mediocre. The IMF should join the debate and be a little more worried about the risks lurking in the economic undergrowth.
