IMF report offers mixed outlook on growth

I discussed the economic forecast for the United States and the rest of the world in a recent column, basing much of it on information from the International Monetary Fund that was released in July.

Today’s column is an update based on significant revisions made by the IMF in early October for its annual “World Economic Outlook” report.

To sum up: Over the summer, the global picture darkened while the U.S. outlook brightened.

Let’s start at home: In its July update, the IMF predicted the U.S. economy would grow at an anemic 1.7 percent in 2014 before rebounding to a healthier 3 percent level in 2015.

The full report in October has revised the 2014 estimate upward to about 2.1 percent while leaving the 2015 forecast unchanged.

“In the United States, conditions remain in place for a stronger pickup in the recovery: an accommodative monetary policy stance and favorable financial conditions, much-reduced fiscal drag, ... strengthened household balance sheets, and a healthier housing market,” the report says. “Employment growth is projected to be strong, but some recovery of the labor market participation rate will slow the decline in the unemployment rate.”

The first half of 2014 saw a dramatic drop in U.S. growth, so the IMF forecast is saying that the second half of the year now looks likely to turn in a 3 percent growth rate, balancing out the year as a whole to just over 2 percent.

If true, investors could see better results as the year winds to a close.

Globally, the IMF trimmed its optimistic growth forecast. The July update had 2014 global growth pegged at 3.4 percent, and the October report drops it to 3.3 percent.

That isn’t a huge change, but it takes on added significance when you realize the July update was a full 0.3 percentage point drop from the April mid-year report forecast.

It paints a picture of continuing decline.

For 2015, the IMF lowered its worldwide growth forecast from 4 percent to 3.8 percent.

“Among advanced economies, growth is projected to pick up, but is slower in the euro area and Japan and generally faster in the United States and elsewhere,” the report reads.

“Among major emerging markets, growth is projected to remain high in emerging Asia, with a modest slowdown in China and a pickup in India, but to stay subdued in Brazil and Russia.”

In trimming prospects for 2015, the IMF cites weaker-than-expected growth in 2014 and increased downside risks related to regional conflicts: “Geopolitical tensions have increased since the spring, with a worsening of the RussiaUkraine situation and continued strife in some countries in the Middle East.”

For investors, these tea leaves are difficult to read.

The fact that the U.S. economy is likely to grow may bode well for U.S. equities, yet deteriorating global conditions could affect U.S. markets negatively.

Proceed with caution, and always take the long-term view.

Eric Tashlein is a CERTIFIED FINANCIAL PLANNER™ practitioner and Principal of Connecticut Capital Management Group, LLC, 67 Cherry St. in Milford. He can be reached at 203-877-1520 or through www.connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor. Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge Investment Research Inc., and Connecticut Capital Management Group LLC are not affiliated.

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