Triumph of hope over experience?
2016 turned out to be another subpar year for the global economy (Chart 1). The IMF predicted an acceleration in growth to 3.6% pa in 2016. But it soon had to revise down to 3.1% pa as the recovery in the Euro area and US lost steam. Emerging markets staged a mild comeback with growth reaching 4.2% pa, up from 4% pa in 2015; but this is still well short of the 6% pa observed in the previous decade. Not surprisingly trade flows have suffered from lacklustre demand, with trade volumes growing 2.3% pa in 2016, well short of the 2015 prediction of 4% pa.
2015 wasn’t the first time forecasters over-predicted growth in the following year. In fact, they have been committing the same mistake since 2010—and been repeatedly disappointed by the sluggish nature of the recovery since the global financial crisis of 2008.