Many thanks for sharing this excellent piece. I really enjoyed. I am sure, you would recall dismal performance of the IMF and the OECD in predicting the outbreak of the 2008-2009 financial crisis.
In November 2008, IMF's World Economic Outlook (WEO) projected a global growth rate of 2.2% for 2009. The IMF had the most optimistic projections relative to other multilateral agencies and private sector estimates. It took one and a half years for the IMF to realise that this crisis would soon engulf the world. A month before the first tremors of the US "sub-prime" mortgage crisis were felt, the IMF noted: "The strong global expansion is continuing, and projections for global growth in both 2007 and 2008 have been revised (upwards)."
Three months before the crisis began in August 2007, the OECD released its 2007 World Economic Outlook, in which it commented: "In its Economic Outlook last autumn, the OECD took the view that the US slowdown was not heralding a period of worldwide economic weakness, unlike, for instance, in 2001. Rather, a 'smooth' rebalancing was to be expected, with Europe taking over the baton from the United States in driving OECD growth. Recent developments have broadly confirmed this prognosis. Indeed, the current economic situation is in many ways better than what we have experienced in years. Against that background, we have stuck to the rebalancing scenario. Our central forecast remains indeed quite benign: a soft landing in the United States, a strong and sustained recovery in Europe, a solid trajectory in Japan and buoyant activity in China and India. In line with recent trends, sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment. (OECD World Economic Outlook Vol 81 p. 7)"
There seems to be no credible reason for such optimism. Signs of an impending crisis were visible at least since 2006. The Department of Economic and Social Affairs of the United Nations warned:
"The possibility of a disorderly adjustment of the widening macroeconomic imbalances of the major economies is a major risk which could harm the stability and growth of the world economy… A reversal in house prices...will heighten the risk of default and could trigger bank crises… A sharp fall in house prices in one of the major economies could, then, precipitate an abrupt and destabilising adjustment of the global imbalances (WESP, 2006, pp v-viii)."
Again in 2007 WESP warned: "The possibility of a more severe downturn in housing markets represents a significant downside risk to the economic outlook...Current-account imbalances across regions and countries have widened further in 2006…The indebtedness of the United States has deepened to a level which more seriously calls into question the sustainability of current constellation of global imbalances (WESP 2007, p. vi)."
The supposed guardians of the world economy simply ignored these warnings and projected a rosy picture, and at worst a "soft landing."
WESP not only had the correct analysis of the underlying risks for the world economy, it also seems to have the more realistic projections for the 2009 growth. When, in November 2008, the IMF was projecting a global growth rate of 2.2% for 2009, WESP projected a base-line growth rate of 0.9%.
Given the dismal track record of the IMF and the OECD, one would have thought that their credibility would be in tatters. Sadly, this is not the case. Instead, we seem to seek counsel about the crisis from the very organisations that could not foresee it, while much superior work of the UN with much fewer resources is ignored.
Anisuzzaman Chowdhury, PhD
United Nations ESCAP
Rajdamnern Nok Avenue
Bangkok 10200, Thailand
Tel: (662) 288-1486; mobile (66) (0)847001131