Sense on Cents

For those not familiar with the acronyms of the organizations referenced in the title of this post:

IMF: International Monetary Fund
CBO: Congressional Budget Office
OMB: Office of Management and Budget, which operates within the White House

This morning the IMF released their updated Global Economic Prospects.

I will share with you the projected growth rates for the United States against those provided by the CBO and OMB.  I will then provide some comparative analysis.

United States
IMF      -2.6% (2009)    .8% (2010)
CBO     -3.0% (2009)  2.9% (2010)
OMB    -1.2% (2009)  3.2% (2010)

The figures provided by CBO and OMB were projections from the 1st quarter 2009. As you can see, the White House projections forecasted by the OMB are wildly optimistic both for this year and next relative to the IMF and CBO.

Those projections play directly into projected tax revenues and then, in turn, to the level of the federal deficit. If the IMF’s current projections are anywhere close to being accurate, our deficit will be significantly worse than previously forecast. What does that mean?

HIGHER TAXES ACROSS THE BOARD!!! What happens then?

SLOWER GROWTH GOING FORWARD!!!

In regard to the rest of the globe, the IMF’s projected numbers speak volumes:

China 7.5% (2009)   8.5% (2010)

Euro Area -4.8% (2009)    -.3% (2010)

Japan -6.0% (2009)     1.7% (2010)

India 5.4% (2009)     6.5% (2010)

Emerging/Developing    1.5% (2009)     4.7% (2010)
Economies

Advanced Economies -3.8% (2009)        .6% (2010)

Global -1.4%  (2009)      2.5% (2010)

Bloomberg provides a review of the IMF report, IMF Sees Stronger Global Rebound From ’09 Recession. I would question the accuracy of Bloomberg’s title. I see a wide divergence between growth prospects in the BRIC nations and emerging markets from those of the advanced economies, especially with Europe and the United States. Bloomberg reports:

Still, risks to the outlook, which have “diminished noticeably,” are still “tilted to the downside,” the fund said, citing a possible downward pressure on asset prices resulting from rising unemployment, pressure on bond yields from concerns on public debt, and emerging economies’ vulnerability to financial stress.

A larger-than-expected drop in risk aversion and stronger demand in emerging economies could offer “some upside risk” that boosts growth, according to the fund.

In a separate report today on the state of the global financial system, the IMF said that while financial markets and confidence in an economic recovery have improved since April, risks remain and policy makers must remain vigilant until a sustained recovery is under way. Credit risks are high, bank lending to the private sector is slowing and the recovery so far has been dependent primarily on public funds, the fund said in an update to its Global Financial Stability Report.

Can the emerging economies of the world pull the developed countries out of the ditch? Will the global economies decouple? Is there any surprise why countries are pursuing protectionist measures?

In regard to the United States, President Obama may want to have the members of his economic team, including Secretary Geithner, Larry Summers, and Peter Orszag, call John Lipsky at the IMF and ask him what he sees.

Risks remain extraordinarily high.

LD