Sun, May 06, 2001 - Page 11 News List

IMF's economic forecasts criticized


The IMF forecasts the US economy will rebound this year, Turkey's economy will contract, and Europe will reduce interest rates. The Organization for Economic Cooperation and Development agrees.

Should you follow the predictions of the two government-backed international organizations and bet on NASDAQ stocks and against the Turkish lira? Not according to a number of studies -- including two by the IMF itself. The studies found that the IMF's and OECD's ability to forecast is no better than an average of private economists' projections -- and may be worse.

The IMF's World Economic Outlook, published last week, makes headlines from Sao Paulo to Moscow, largely on the strength of the lender's access to data from finance ministers and central bankers worldwide. The OECD, which published its outlook yesterday, has the same channels of information.

Those official links don't mean the predictions are right, said one critic.

"These numbers get vested with all kinds of importance they don't deserve," said Roy Batchelor, a British researcher who studied the accuracy of IMF and OECD forecasts. "What's more important is the feel the IMF gives the numbers, and the nudges it gives policy-makers." The headlines make IMF miscalculations stand out.

Last September, the IMF said the US economy would expand 3.2 percent this year, prompting the fund's No. 2 official, Stanley Fischer, to say he ``feels much safer'' about the world economy.

Last week, the fund lowered its US prediction by more than half and put world growth at its lowest level since 1998.

In April 1997, the IMF called Thailand, South Korea and Indonesia "strong performers" that would drive developing countries' output to 6.5 percent that year. Three months later, Thailand devalued its currency, triggering a chain reaction throughout East Asia and eventually sending the region plunging into recession.

And while the IMF report last week predicted strong growth in Latin America, the fund itself questioned that optimism.

"Our forecast for South America is a little rich given the problems we've recently seen in Argentina and some of the spillover we've seen to Brazil," IMF Chief Economist Michael Mussa said after releasing the report he supervises.

And even as the IMF came out with a forecast of 4.2 percent for Africa this year, it acknowledged that on average during the past decade it has predicted growth in the poorest continent at one percentage point more than the actual result.

While critics point to the IMF's forecast in September that the US would grow 3.2 percent, the fund counters that it predicted for years that the economic boom in the US would end. And many private economists didn't see the slowdown coming either.

In a 1996 analysis of its forecasts, the IMF said it almost always predicted economic growth in the richest countries to within 1 percentage point each way -- with no evidence of bias for the forecasts.

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