Although UK-based research firm Capital Economics does not entirely agree with some of the International Monetary Fund’s latest forecasts, they say that the recent downgrades made by the fund largely reflect previous “over-optimism” rather than pessimism, and their forecasts still remain too positive. “Although we agree with the IMF that the collapse in oil prices is a net positive for world GDP, its forecasts for global growth still look too optimistic,” global economist for Capital Economics Michael Pearce says. The IMF released its latest quarterly update of global economic forecasts Tuesday, downgrading its global growth expectations to 3.5% in 2015, from 3.8%. “The IMF lowered its growth forecasts for most countries, but in many cases these downgrades did not go far enough,” Pearce says in the report. Looking closer at Europe, he says they think the IMF is too confident about the risk of deflation in the region. “The IMF expects inflation in advanced economies to average 1% this year. In contrast, we think it will be close to zero,” he says. The IMF also increased its growth forecast for the U.S. to 3.6% this year, as a result of lower oil prices and increased domestic demand. “While we agree that the dramatic fall in oil prices will provide a big boost to the U.S. economy, other factors, including the stronger dollar and slightly higher interest rates, suggest that growth in the U.S. may not be quite as spectacular as the IMF suspects,” Pearce says. “Our view is that world GDP is likely to expand by just over 3% this year and next.”
