The Futility Of Forecasting Global GDP Growth

by: Disruptive Investor

Several organizations globally estimate GDP growth for the near-term and the long-term.

How useful are these forecasts to make an investment decision?

This article uses the growth forecast by the International Monetary Authority (IMF) to underscore the point that GDP growth forecasts invariably fail to predict real economic growth. While investors watch these data points closely, they might help little in making investment decisions.

The chart below gives IMF's forecast for real GDP growth for the world and the actual growth rates over a period of time.

Click to enlarge

It is clear that IMF has failed in the last six years to predict GDP growth and on each occasion, IMF growth forecasts have been relatively optimistic. The idea is not to criticize IMF, but to underscore the futility of predicting economic growth in a significantly dynamic global economic and political environment.

In all probability, IMF's latest world economic outlook is also optimistic and I fear that the world is heading towards recession than brighter days. And it's always safe to remain bearish than bullish when making economic or stock market predictions.

IMF currently expects global GDP growth of 3.2% for 2016 and 3.5% for 2017.