There are numerous risks to the IMF’s forecast, in both directions. Unfortunately, the IMF’s downside risks seem to outweigh the upside risks. In the recent World Economic Outlook, the IMF outlined the following:
On the upside, the reversal of the confidence crisis and the reduction in uncertainty may continue to foster a stronger-than-expected improvement in financial market sentiment and prompt a larger-than-expected rebound in capital flows, trade, and private demand. New policy initiatives in the United States to reduce unemployment could provide a further impetus to both U.S. and global growth.
On the downside, a key risk is that a premature and incoherent exit from supportive policies may undermine global growth and its rebalancing. Another important risk is that impaired financial systems and housing markets or rising unemployment in key advanced economies may hold back the recovery in household spending more than expected. In addition, rising concerns about worsening budgetary positions and fiscal sustainability could unsettle financial markets and stifle the recovery by raising the cost of borrowing for households and companies. Yet another downside risk is that rallying commodity prices may constrain the recovery in advanced economies.
Source: IMF World Economic Outlook
