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IMF’s growth forecasts for non-advanced economies

The IMF’s assessment is that growth will decline by 8.4 percentage points for the advanced economies from 2019 to 2020 and by only 5.3 percentage points for emerging markets and developing economies. What drives the optimistic forecasts made by the IMF for non-advanced economies?

Despite the initial lower spread of the virus in these countries, many factors would suggest a larger shock to hit their economies. J. Sandefur and A. Subramanian consider cross-country regressions where the dependent variable is the IMF's forecast revision or the growth forecast. They use as regressors factors representing external vulnerabilities (export/GDP, tourism/GDP, natural resources rent /GDP, indicator of past financial crises) and factors representing domestic shocks (stringency index, Google mobility, agriculture/GDP, fiscal spending/GDP, Covid-19 cases, forecast of Covid-19 cases). In the regressions they also include a dummy for the country being emerging/developing. They limit the data up to April 14, when the WEO was published.

Overall, the only factor that is always significant is the dummy, meaning that no other factor can justify the IMF's relative optimism about the prospects of these countries. The authors conclude with 3 potential explanations: 1) the forecasts were not updated to the latest developments in these countries, 2) the forecasts internalize the countries’ desire to have better forecasts, 3) the IMF wanted to lower its financing requirements to offset the shock in these countries. 

Link to the paper here.

Paola Di Casola*

Sveriges Riksbank

Posted by Maria Perrotta Berlin

*The opinions expressed in this post are the sole responsibility of the author and should not be interpreted as reflecting the views of Sveriges Riksbank.


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