IMF Meetings to Highlight Policy Puzzle for Economists

The bombardment of commentaries about the economic outlook and policy implications from this week’s annual meetings of the International Monetary Fund and World Bank will most likely coalesce around three big themes. Although none of them are likely to move the needle for markets, they will highlight critical longer-term challenges that, as yet, lack good theoretical or practical solutions.

The first is the uncertain and unstable outlook for the global economy, which will be underscored by the new IMF projections. On paper, the forecasts are most likely to be marginally better than the last set. But the commentary that accompanies them will emphasize the risks involved, not only those related to further Covid-19 restrictions on economic activity, particularly in some parts of Europe, but also the cautious behavior of households linked to “human counterparty risk” — that is, the inability of many people to ascertain with a sufficient degree of confidence the risk they take in the face-to-face interactions that are critical for economic activity, particularly in the service sector. Indeed, I would go one step further and suggest that were the IMF projections reworked again today, they would end up with fewer upward revisions.