IMF Growth Forecast Call into Doubt Multi-trillion Central Bank Stimulus Schemes

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By Jacob Maslow

Imf - International Monetary FundThe recent IMF forecast for the global economic growth is nothing short of sobering. According to the global finance body, the world’s aggregate economy will grow by a measly 3.5% this year and 3.6% next year. These figures are .3% lower than earlier IMF estimates. Times are definitely rough for most countries besides the US. In fact, the US is the sole bright spot in an otherwise gloomy global financial picture. Indeed, the IMF has revised its US GDP estimate upward to 3.6%. This reflects a .5% improvement from earlier estimates.
Considering this gloomy global economic picture, one can’t help but question the effectiveness of central bank intervention. All told, total central bank interventions from the US to Japan has pumped trillions of dollars’ worth of liquidity into global finance markets. While this has boosted the price of real estate, bonds, and stocks, it hasn’t really jolted the global economy back to life. This policy surely hasn’t helped Japan’s GDP.
As for the US recovery, its increasingly bright jobs picture is blighted by two disturbing statistics: the new jobs being created tend to cluster primarily on the low end of the wage scale and the otherwise sunny new jobs number tend to obscure a historically low labor market participation level. To say the US recovery is uneven and wobbly is putting it mildly.
Still, fans of central bank stimulus schemes can point to the US as a ‘success story.’ The real test of whether quantitative easing actually triggered a US recovery will be US housing numbers. More specifically, if more Americans buy homes, this should indicate a deep confidence the job market and, by extension, the economy has finally turned around. Keep an eye on whether this economic metric persists on a sustained basis. Put simply, the verdict is still out on central bank interventionist moves’ effectiveness.
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