Differing IMF forecasts of Gross Planet Product..

Well, I didn’t know there is an economic term like Gross Planet Product.

Prof. Peter A.G. van Bergeijk of Erasmus University brings this term in this article. Basically, it is GDP of the entire world. Prof. says that there is a difference in GPP at current prices and GPP at constant prices + inflation. The first one shows a decline and latter shows a rise!:

Presenting the October 2015 IMF World Economic Outlook, Maurice Obstfeld (2015) identified the fall of commodity prices as one of the powerful forces shaping the outlook for the world economy. The strength of this force, however, is underestimated by the official forecasts in the IMF’s flagship publication. As illustrated in Figure 1 the IMF world economic outlook database reports  a reduction of Gross Planet Product (GPP)  for the year 2015 by -3,8 trillion dollar (-4.9%). A nominal reduction of GPP of this size has occurred only once since 1980 (the starting year of the IMF database), namely at the start of the Great Recession when GPP contracted by -5.3%. Table 1 illustrates that all previous contractions of nominal GPP are associated with major crises in the world economy.

Figure 1. Gross Planet Product at current prices (trillions of dollars, 1980 – 2015)

Source: IMF World Economic Outlook Database, October 2015.

Table 1. Years with nominal contractions of GPP (1980-2015)

Source: IMF World Economic Outlook Database, October 2015.

The reduction at current prices is especially noteworthy in view of the official IMF forecasts (2015, table 1.1, p.2) that set real economic growth at 3.1% and planetary inflation at 3.3%. Taken at face value these forecasts imply a growth rate of GPP of + 6.5 %. By implication the IMF is either too optimistic about real growth, too optimistic about the avoidance of deflation or too optimistic about both these factors.

Hmm… interesting. It is not just Indian stats agency but IMF too which goofs up. Here is how the GPP at current prices data looks like.

He looks at the reasons which could explain this difference and concludes:

All in all only one percentage point of the shrinkage could possibly be caused by these alternatives. The remainder of about 3.9 percentage point is too large to be simply regarded as the usual inaccuracy of macroeconomic statistics (Manski 2015). This shrinkage is therefore economically significant and thus needs to be taken seriously.

The implication is that the IMF forecasts for 2015 for the world economic system are inconsistent, but that this has not been explicitly noted. These are already worrying conclusions in themselves. Moreover, it is likely that the official IMF forecasts for real GPP are likely to be too optimistic as has also been the case in the past. Analysing the IMF’s track record over a 20-year period, the Independent Evaluation Office (2014) reports that real economic growth has been overestimated, especially in periods of global crisis. Further downward revisions of the real economic growth rate are therefore to be expected.

How many times will IMF go wrong on these matters? Still it remains the primary agency to track global economy…

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