IMF Forecasts Accelerating Global Economic Growth in 2014 and 2015

On January 21, the International Monetary Fund (IMF) issued a positive update on its World Economic Outlook. In a press conference, Olivier Blanchard (Economic Counsellor and Director of the Research Department) stated the report had three main messages:

• The global economic recovery is strengthening, with accelerating growth in both the developed and emerging economies (see infographic below):

Source: IMF World Economic Outlook (WEO) Update: Is the Tide Rising?, January 2014 

• This increase in growth was anticipated. The drag from fiscal consolidation is diminishing; the financial system is slowly healing; uncertainty is decreasing.
• The economic recovery remains relatively weak and uneven, and risks are evident.

For the U.S., the IMF projects a rise in GDP from 1.9% in 2013 to 2.8% in 2014. Blanchard commented:

“U.S. growth appears to us to be increasingly solid. Private demand is strong. As a result of the December budget agreement, fiscal consolidation, which weighted on growth negatively in 2013, will be more limited in 2014.”

The IMF update is good news to global stock market investors. We pointed out in our October 1 and January 1 Outlooks that the world's stock markets rose every year this century when global GDP growth accelerated. We note that Marietta's forecast for 2014 global growth is 4.1% and for U.S. growth is 3.0%, and thus we think the IMF is still too conservative and will raise further estimates as the year progresses.

Global Economy Slowing Again, but Accelerating Growth Coming

In each of the last 3 years, the global economy started the year with a burst of momentum, lifting global stock markets.  In each of these years the U.S. and international economies subsequently hit a spring and summer “soft patch” resulting in double digit declines for global market benchmarks.  Building evidence that the leading economies of the world are once again experiencing a “soft patch” has understandably created concerns that another sharp correction in equity markets may be imminent.  A correction is always possible, especially following the hefty gains registered since last September.  Nevertheless, we confirm the view in our April 3 Outlook that this economic “soft patch” will likely be short and shallow, and that markets will enjoy strong rallies as the year progresses (as in each of the past 3 years).  We are reducing modestly Marietta’s 2013 global GDP forecast from 4.0% to 3.7% to adjust for the current slowdown, but maintaining our outlook of 4.5% in 2014.  We also anticipate a further advance in global stock markets next year as economic growth accelerates.     

Evidence of a developing global economic slowdown is widespread, although the deterioration seems less troublesome than in past years.  In the U.S., employment data shows that in March employers added the fewest workers in 9 months.  March retail sales suffered their biggest drop since June 2012.  Regional manufacturing reports also reveal disturbing trends.  First quarter GDP growth of 2.5% came in below consensus expectations of 3.0%.  The situation in Europe is more worrisome:  auto sales are disappointing, manufacturing is weakening, construction is slumping, and unemployment has risen to a new high.  Some of the stronger economies, such as France, are teetering on the brink of recession, and the slump in the peripheral countries of Greece, Portugal, Italy, and Spain is deepening.  Even the fast-growing, leading emerging economies are exhibiting problems.  Disappointing GDP and manufacturing data in China have again kindled fears of a hard landing (see our 12/24/12 blog Chinese Economy and Stock Market Rebounding).  In Brazil, sliding consumer confidence and rising inflation and interest rates have prompted economists to scale back their growth estimates for the year.  Commodities are a good measure of the pulse of the global economy, and they have been sliding since February.    

The causes of the current “soft patch” vary from country to country.  In Europe, the Cyprus debt crisis and continuing political and economic uncertainty in Italy, Spain, and Greece are causal factors, but the primary culprits are the government austerity programs.  We attribute the slowdown in China to the bumpy progress of the government in shifting the focus of economic growth from exports and infrastructure to consumer spending.  The U.S. slump is attributed to a variety of causes, although it must be noted that there are economists who claim that the statistics are based on faulty seasonal adjustments and there is, in reality, no “soft patch.”   We think the slowdown is real, and we blame it primarily on the expiration of the payroll tax cut and the higher income taxes on affluent Americans.  In combination, they will cost taxpayers some $150 billion this year.  The government’s sequester, which kicked in on March 1 and will cut spending by about $85 billion this year, is also a brake on growth.  Any discussion of the ebbing strength the U.S. economy must include the lack of business confidence.  Businesses are sitting on record piles of cash ($1.8 trillion in U.S. corporations listed on the major stock exchanges) and are evidently too uncertain about the future economy to invest in new plants and/or employees.  In our view, political gridlock in Washington, federal fiscal irresponsibility, and excessive regulation all contribute to this reluctance to invest in the future.      

Our positive forecast, then, is based on a future improvement in the confidence and optimism of business in the leading economies.  This is the role of the policymakers, and we think they will respond appropriately.  The major supports for future global growth are the world’s central banks, which are moving decisively forward with accommodative policies.  International Strategy and Investment (ISI) has counted 379 stimulative policy initiatives around the world over the past 20 months.  More is coming.  A decline in global inflation, in part a beneficial byproduct of the decline in commodity prices, is providing central banks, particularly in the U.S., Europe, and China, with a green light to proceed.  The Federal Reserve has stated repeatedly its determination to keep rates low until unemployment, now slightly below 8%, drops to at least 6.5%, and on May 1 indicated its willingness to increase its pro-growth activities if the economy falters.  The most recent convert to a pro-growth policy is the European Central Bank (ECB), who cut interest rates on May 2 in response to a drop in inflation below 2.0% and a rise in unemployment above 12%.  The next central bank to join the parade may be India.  The Economist (April 6, p. 14) summarized the synchronized recovery program:  “The message from the rich world’s central banks is clear:  the era of ultra-loose monetary policy is here to stay.”  The full impact of these unprecedented stimulus measures, which typically takes 6 months or more to have full effect, is unclear but, in our opinion, is decisive.  

Recent developments in Japan are instructive.  Prime Minister Shinzo Abe has urged the Bank of Japan (BOJ) to combat decades of deflation by engaging in monetary easing designed to raise inflation to at least 2%.  The BOJ has responded, and the key consequence has been a dramatic decline of the yen, which in turn has increased significantly the competitiveness of Japanese exports.  In a different economic environment, Japan would be condemned as a currency manipulator.  In today’s growth threatened world, however, the International Monetary Fund, the World Bank, and the G20 leading economic countries have expressed support for the BOJ.  At home, the Japanese stock market has surged, consumer confidence is at a 6 year high, retail sales are rising, exports are rebounding, and Abe’s approval rating has soared to a record 76%.  Politicians and central banks around the world are taking notes.

Politicians in the U.S., Europe, and other countries are jumping off their austerity platforms and onto the growth bandwagon.  Partisan bickering over taxes and budget deficits among U.S. politicians has cooled and compromise to limit the negative consequences of sequester is increasingly in vogue.  In Europe, the severe and immediate austerity policy championed by Germany has come under attack.  The views expressed by The Economist are gaining adherents:  “In Europe the combination of a timid ECB, harsh austerity and minimal structural reforms is not giving growth much of a chance” (April 6, p. 16). 

We are not depending on the policy makers alone to lift the U.S. economy.  In addition to the quantitative easing activities of the Fed, the strengthening housing market and the rising stock market are bolstering growth.  The rise in residential real estate prices, which in February increased year-over-year by the most since May 2006, is especially encouraging.  Housing lifts employment, consumer net worth, and consumer and business confidence.  The same is true of rising stock prices.  In combination this “wealth effect” helps account for last month’s jump in consumer confidence.  Most investors believe the stock market is itself a forward indicator of the economy’s future, and today the S&P 500 Index closed at an all-time high with a gain of 12% since the beginning of the year.  Clearly, investors are not overly worried.

Assessing recent trends and developments, the IMF in April released its updated Overviewof the World Economic Outlook, which we consider positive and supportive.  Although the IMF reduced its global 2013 GDP projection from 3.5% to 3.3%, they left in place their 4.0% estimate for 2014.  All of the key economies, including the U.S., Euro-Area, Japan, China, India, and Brazil, are expected to achieve higher growth next year than this year.   In particular, U.S. growth is forecast to rise to 3.0% and China to 8.2%.  Even Italy and Spain are expected to emerge from recession.  We detect a note of relief at the IMF.  Looking back on 2012, they began their report: “Activity has stabilized in advanced economies and has picked up in emerging market and developing economies, supported by policies and renewed confidence.” 

In each of the past 4 years we have posted a blog regarding the then current “soft patch,” and in each case we predicted (correctly) an economic and market recovery.  We again counsel investors to exercise patience and remain cautiously optimistic.

Global Economic Revisions

The sharp decline in global stock markets last week was in large part attributed by the financial media to economic warnings issued by the Federal Reserve and the International Monetary Fund (IMF). The reports spawned a rash of recession forecasts as markets tumbled. A closer look at the press releases of these institutions, however, reveals a far less ominous outlook of continued albeit more modest growth. 

Financial markets were well aware before last week that the U.S. and European economies were weakening and that there was a rising risk of further deterioration. It was the Fed’s language that startled investors. Their September 21 policy statement asserted that “there are significant downside risks to the economic outlook, including strains in global financial markets. ”This was a sterner warning than the Fed’s August 9 alert that “downside risks to the economic outlook have increased.” 

Investors evidently overlooked the positive growth forecast in the Fed’s statement: “The Committee continues to expect some pickup in the pace of recovery over coming quarters” and anticipates a gradual reduction in unemployment. Indeed, three members of the ten-member Committee believed the economy was not in imminent peril and voted against the Fed’s new “operation twist” policy on the grounds that they “did not support additional accommodation at this time.” 

In its semi-annual global economic report released last week, the IMF alarmed investors with the opening statement: “The global economy is in a dangerous new phase. Global activity has weakened and become even more uneven, confidence has fallen sharply recently, and downside risks are growing.” In the introduction, Executive Counsellor Olivier Blanchard pointed out that “fear of the unknown is high” and concluded: “In light of the weak baseline and high downside risks, strong policy action is of the essence.” 

The actual growth projections in the IMF forecast are more encouraging. Global GDP growth is expected to be 4.0% in 2011 with an additional 4.0% in 2012. The U.S. will avoid recession with 1.5% growth in 2011 and 1.8% growth in 2012. The Euro Area is projected to slip but remain positive: 1.6% growth this year will slide to 1.1% in 2012. The emerging and developing economies will continue to drive global growth with gains of 6.4% in 2011 and 6.1% in 2012. China and India will maintain their torrid pace with 2012 gains of 9.0% and 7.5%. 

 Supporting these forecasts of continued GDP growth this and next year is the consensus outlook of economists polled by The Economist. The U.S. is expected to grow 1.6% in 2011 followed by a modest rise of 2.0% in 2012. Euro Area growth will remain positive but slump from 1.7% this year to 1.0% next year. The widening gap between the developed and the emerging economies, so pronounced in the IMF forecast, is also reflected in the consensus outlook: China is predicted to slow only modestly from 9.0% to 8.6%, whereas economists foresee India’s GDP will rise from 7.9% to 8.2%. 

 In review, the broadly accepted, probable scenario projected by professional economists is that the U.S. and Euro Area will muddle through with the support of continued strong growth in the emerging economies. Even though the economists do not believe recession is likely, they acknowledge that the global economic outlook has dimmed, the risk of a further deterioration has risen, and a further reduction in estimates may be necessary. All eyes will focus on the policy makers to take decisive action to raise consumer and investor confidence and restore healthy growth.

IMF Forecasts Rebound from Global Economic Soft Patch

On June 17, the International Monetary Fund (IMF) predicted a rebound in global economic growth in the 2nd half of 2011 that should help to calm jittery equity investors. In an update to its World Economic Outlook, the IMF lowered only modestly its prior April forecast for 2011 GDP growth from 4.4% to a still-healthy 4.3%, and also predicted an acceleration in 2012 to 4.5%. The disparity in growth between the advanced economies (2012 GDP +2.6%) and the emerging and developing economies (2012 GDP +6.4%) is expected to continue.

For the U.S., the IMF anticipates anemic 2.5% growth in 2011 with only a slight bump to 2.7% in 2012. Nevertheless, Olivier Blanchard, the Fund’s Economic Counsellor, dismissed prospects of a retreat into a double-dip recession by labeling the soft patch as “a bump in the road rather than something more worrisome.”

The IMF also rejected negative economic scenarios for the leading emerging economies. Although rising inflation and subsequent restrictive central bank policies have spawned dire predictions of economic “hard landings,” the IMF expects continuing robust growth into 2013. China’s growth is pegged at 9.6% in 2011 and 9.5% in 2012, India at 8.2% and 7.8%, and Brazil at 4.1% and 3.6%.

Although optimistic, the IMF is hardly complacent. Their major concern, however, is not that the world’s leading economies will deteriorate on their own, but rather that governments and central banks will adopt ill-advised policies and abort a rebound.

IMF Supports Marietta Global Growth Forecast

On April 11, the International Monetary Fund (IMF) issued its semi-annual World Economic Outlook, which forecasted global GDP growth of around 4.5% in both 2011 and 2012. This prediction is in line with the 4+% estimate in our January 4 and April 4 Marietta Outlooks, and supports our view that the recent dramatic events in Japan and the Middle East will have only a modest negative impact on the global economic expansion.

The existence of a growth gap between the leading emerging economies and the advanced economies has been a prominent feature of Marietta’s economic outlook and investment strategy since the inception of the global economic recovery in early 2009. More recently this was the subject of our October 21, 2010 blog Global Economic Growth: The Rabbits and the Tortoises. The IMF shares our view that this gap will extend for the foreseeable future. We concur with the IMF’s 2011 and 2012 GDP projections of 9.6% and 9.5% for China, 8.2% and 7.8% for India, and 4.5% and 4.1% for Brazil. In sharp contrast, the IMF forecasted significantly lower growth for the advanced economies of the Euro Area (1.6% and 1.8%), Japan (1.4% and 2.1%), and the U.S. (2.8% and 2.9%).

For the past two years, Marietta’s central investment thesis has been that a multi-year economic expansion would give rise to a multi-year bull market in global stocks, and the best returns would be provided by the stocks of companies that participate heavily in those economies where growth is highest and most assured. The latest forecast by the IMF buttresses our conviction.

Especially noteworthy is the IMF’s discussion of what needs to be watched and what could go wrong. Highest on their list are rising inflation trends exacerbated by soaring industrial and agricultural commodity prices. IMF Chief Economist Olivier Blanchard asserts that at this point “they appear unlikely to derail the recovery,” but adds that inflation pressure is likely to build further as growing production comes up against capacity constraints, with large food and energy price increases raising pressure for higher wages (IMF Survey Magazine, 4/11/2011). The response of central banks to combat inflation with restrictive policies will likely slow economic growth. In other words, there is a growing threat of stagflation. We at Marietta will be watching closely.

U.S. Corporate Profits and Stock Prices

Our forecast for the U.S. economy, corporate profits, and stock prices in 2011 supports a positive if cautious outlook:

• The U.S. stock market’s rally since 3/9/09 rests on a solid foundation of rising corporate earnings.

• The market is not currently overvalued, and there is room for a further advance if the 2011 profit expectations of market strategists and research analysts are valid.

•  We caution that these 2011 earnings estimates underlying a further U.S. bull market advance rest on shaky economic ground. If the economic outlook deteriorates further, companies with excessive exposure to the U.S. and other developed countries may report earnings disappointments and suffer stock price declines. We recommend investors take a global perspective and emphasize markets in fast growing economies and the stocks of multinational companies in the developed countries that have strong business opportunities in these fast growing economies.

Despite an anemic, subpar economic recovery, the Standard & Poor’s 500 Index has soared 74.9% since hitting bottom on March 9, 2009. The headwinds have been and remain formidable: weak consumer spending and confidence, sky-high unemployment and underemployment, a soggy housing market flooded by foreclosures, a troubled financial system that continues to restrain credit, and a nagging fear in business circles that Washington not only can’t remedy the problems but may make matters worse. On the other hand, the roster of positives boosting the market has evidently more than offset these negatives. These include strong corporate profits, low inflation and interest rates, a very accommodative Federal Reserve policy, an attractive market valuation coming off recession lows, and the relative lack of appeal of money market funds, bonds, and real estate.

In our view, the most important ingredient in the bull market recipe has been surprisingly robust corporate earnings. According to First Call, the trailing 4-quarter earnings per share (EPS) for S&P 500 companies rose from $62.85 as of March 31, 2009 to $79.05 on September 30, 2010, which is an increase of 26%. This includes an estimated 13% gain in year-over-year profits for this year’s 3rd quarter. Bloomberg reported on October 4 that more than 70% of S&P 500 companies have exceeded the average analyst profit projection for 4 consecutive quarters, which marks the longest streak since Bloomberg began tracking corporate earnings in 1993. We are convinced that positive earnings surprises and upward revision of future earnings estimates are the most powerful catalysts in lifting stock prices. The jump in earnings also keeps the market’s valuation attractive despite the huge run up in stock prices: the P/E ratio of the S&P 500 Index based on trailing 4-quarter earnings was 15.0% on September 30, which is close to the long term norm.

The key question now is whether 2011 profits will be strong enough to sustain the bull market. Clouding our optimism is that many economists are now predicting GDP growth next year to slow from its current sluggish rate. In The Economist’s latest polling of economists (10/23/2010), the consensus trimmed its 2010 U.S. forecast to 2.6% and predicted a further slide to 2.4% in 2011. We pointed out in our October 21 blog that in early October the International Monetary Fund (IMF) issued a similar 2011 GDP slowdown to 2.2% for developed countries as a group (the U.S. Europe, Japan, Australia, et.al.). As the IMF sees it, the economic recovery over the past 15 months has been driven by fiscal stimulus and inventory accumulation, and both are coming to an end. In the future, growth will have to come from consumption and investment, which in the developed countries are weak and not expected to improve much. A possible income tax increase in the U.S. and budget austerity programs in Europe would exacerbate the already meager 2011 prospects for growth.

There are two ways to measure 2011 S&P 500 profit expectations. A top-down forecast of market strategists, based on fundamental economic and financial market assumptions, is rosy: experts canvassed by First Call foresee a 14% advance, whereas the participants in Bloomberg’s poll anticipate a 9% rise. Even more optimistic is the bottom-up aggregate outlook provided by research analysts estimating company profits: 8,500 analysts tracked by Bloomberg expect a 15% increase. It is noteworthy that these 3 EPS estimates, which range from $87.34 to $95.95, are all above the pre-recession level of $86.20 reached in 2007. Also noteworthy is Bloomberg’s assessment that the S&P 500 is currently valued at 12 times projected income for 2011, which is “the cheapest level since 1988 (excluding October 2008 to March 2009 after New York-based Lehman’s bankruptcy), relative to reported profit from the past 12 months.”

Global Economic Growth: The Rabbits and the Tortoises

In an important October 6 address on the International Monetary Fund’s (IMF’s) latest world economic outlook, Director Olivier Blanchard focused on the current recovery’s most significant development:

“The world economic recovery is proceeding, but it is an unbalanced recovery. It is sluggish in advanced countries, and it is much stronger in emerging and developing economies.”

This is a theme we first identified in our April 4, 2009 Outlook, and at the time and in subsequent Outlooks and blogs we emphasized that this unbalanced growth would have important investment consequences. Chief among these would be the rising relative attractiveness of the emerging economies’ equity markets and the stocks of multinational companies positioned to provide products and services to the mushrooming middle classes in these economies.

Mr. Blanchard’s presentation is very useful in explaining the IMF’s view of the sources of this growth imbalance, in quantifying the extent of the gap in 2010 and 2011, and in providing policy options which would help to restore a healthier balance. From an investment perspective, his analysis supports our view that this gap is based on structural factors that will likely continue, and may increase, in the foreseeable future.

According to the IMF, there are three major impediments restricting growth in the U.S. and Europe: weak consumption as households struggle to improve financial security, depressed housing markets, and credit-constraining weakness in their financial systems. The IMF’s 2010 GDP growth forecast for these countries is a modest 2.7%. In sharp contrast are many emerging economies, “where excesses were limited and the scars of the crisis are few.” For these economies as a whole, the IMF predicts 2010 GDP growth of 7.1% with emerging Asia’s surging 9.4% growth rate leading the charge.

The IMF expects even more headwinds will buffet the U.S. and Europe in 2011 as the global recovery enters a new stage. The major drivers of growth dating back to the inception of the recovery were inventory accumulation and fiscal stimulus. As the IMF sees it, “the first one is coming to a natural end and the second one is being slowly phased out.” Going forward, consumption and investment must take the lead. The problem is that consumption and investment in most advanced countries “are still weak and will remain so for some time.” The IMF concludes that GDP growth in these countries will shrink from this year’s 2.7% to 2.2% in 2011. This slowdown will be too anemic to reduce stubbornly high unemployment rates, which in 2011 are expected to be around 10% in both the U.S. and Europe. 2011 GDP growth in the emerging economies will also likely slow, yet will still be a robust 6.4%.

The downward revisions in the IMF forecast are representative of reduced consensus predictions as the economic “soft patch” in the U.S. and Europe has continued into the fourth quarter. Lowered economic growth assumptions will likely result in reduced corporate profit growth estimates as Wall Street analysts direct their attention to 2011. We will explore this subject and its impact on global common stock strategies in a future blog.

For a transcript of Mr. Blanchard’s remarks, see www.imf.org/external/np/tr/2010/tr101006.htm

Global Growth Opportunities: India

We are impressed with the strength and future prospects of India’s economy, and we think its equity market is increasingly attractive. During the 2003-2007 global expansion, India’s robust GDP growth (which hit 9.1% in 2007) was driven by consumer demand arising from a mushrooming middle class. With only about 20% of the GDP dependent on exports, the economy was relatively isolated from the recent recession in the developed countries and enjoyed growth of 5.1% in 2008 and 7.7% in 2009. Now the economy is accelerating again: the World Bank estimates GDP growth will top 8% in 2010, with further gains of 8.7% in 2011 and 8.2% in 2012.

India’s astonishing growth, second only to China’s among the leading emerging economies, will continue to rest on the size, youth, and growing prosperity of its working class. The U.N. forecasts that the working-age population in India is expected to expand to 275 million, a rise of 46%, by the year 2025. An article in The Economist indicates that by 2020 three out of every ten new entrants to the global workforce will be Indian. Conversely, the working-age populations in the U.S and China are expected to grow by a mere 12% and 10%, and the working-age populations in Japan and Europe are expected to decline by -17% and -13%, respectively.

In addition to a burgeoning workforce, household incomes are also rising. In 2009, the IMF estimated India’s per person annual income at $1,031. At less than half the annual per person income in China and the other leading emerging economies, there is plenty of room for income growth without damaging productivity or international competitiveness. Multinational corporations, including those in China, are expected to increase outsourcing to India.

Challenges that may restrict long term growth include high inflation, inadequate physical and social infrastructure, and an ineffective and protectionist government. The Economist lists India’s inflation at 11.3% and their latest poll of economists predicts full-year 2010 inflation to be 11.4%. Recent trends such as moderating food and commodity prices, however, should reduce 2011 inflation to a manageable 5-6%.

A retardant to India’s current growth but a boost to future growth is a dilapidated infrastructure, which the government intends to upgrade with a $1 trillion investment between 2012 and 2016. To successfully implement these upgrades, India needs government reform. Historically, India’s democratic government has favored protectionism, complex labor laws, regulations that differ from industry to industry and has tolerated a lack of coordination among local government agencies. The 2009 election of Mr. Singh and Mrs. Gandhi is promising.

The investment implications of India’s rapid and assured future growth, coming at a time when the economies of the U.S., Europe and Japan are struggling, are manifest. The benchmark Sensex Index of India stocks rocketed 501% during the 2003-2007 expansion, and it soared 130% from the beginning of the global stock market rally on March 9, 2009 through September 12, 2010. In contrast the S&P 500 advanced a modest 67% and 63% during these two periods. We recommend investors focus on the stocks of Indian and other multinational companies which provide goods and/or services to the surging working class or which support infrastructure improvements.

IMF Rejects Recession, boosts 2010 Global GDP Outlook

Reflecting stronger global growth in the first half of 2010, the International Monetary Fund (IMF) on July 8 bumped its 2010 global GDP forecast from 4.2% to 4.6%, and restated their 2011 forecast of 4.3%. This upward revision supports the Marietta view presented in our July 5 Outlook that the global economic recovery will emerge from a current slowdown and enjoy a multiyear expansion.

The IMF projections, which reject currently fashionable predictions of a U.S. and/or global “double-dip” recession, also endorse our view that 2010 growth will be paced by the leading economies of China (10.5%), India (9.4%) and Brazil (7.1%); the U.S. (3.3%), Japan (2.4%) and the Euro Area (1.0%) will expand at a subpar recovery rate.

We pointed out in our Outlook the rising risk that the European austerity programs, the U.S. economic “soft patch,” and the efforts of the leading emerging economies to cool inflation will excessively slow growth. The IMF also expressed a similar concern regarding “how Europe deals with fiscal and financial problems, how advanced countries proceed with fiscal consolidation, and how emerging market countries rebalance their economies.” We continue to advise investors to remain vigilant and flexible.

Global Growth Accelerating

In yet another indication that the global economic recovery is gaining momentum, the International Monetary Fund (IMF) has again raised its projections (see our January 28 blog). On April 21 the organization bumped its 2010 global GDP forecast from 3.9% to 4.2% and reiterated its prediction of 4.3% in 2011

The IMF continues to emphasize that the expansion will be lead by the leading emerging economies of China, India and Brazil with growth increases of 10.0%, 8.8%, and 5.5% respectively. The IMF also continues to anticipate sluggish growth in the Euro Area (1.0%) and Japan (1.9%) but they are becoming more optimistic regarding the U.S. with GDP growth raised from 2.7% to 3.1%.

The IMF forecast is supported by a consensus of economists that the latest monthly polling by The Economist foresees modest 2010 GDP growth in the Euro Area (1.2%) and Japan (1.9%), slightly higher growth in the U.S. (3.1%) and robust growth in China (9.7%), India (7.7%) and Brazil (5.5%). Worth noting is that these economists anticipate a broad-based as well as a multiyear expansion. The consensus expects positive 2010 growth in 38 of the 42 countries included in the survey (negative growth is projected for Greece, Spain, Hungry and Venezuela) and additional gains in 2011 for 40 of the 42 (Greece and Venezuela are the exceptions).