With the publication of the half-yearly “World Economic Outlook” by the IMF it’s time again to look confidently into the bright economic future – or is it?

Let’s examine how the IMF wizards fared compared to their own (past) forecasts:

Source: IMF World Economic Outlook, Table 2.2 (Selected European Economies);
October 2010 (page 75), April 2011 (page 67), September 2011 (page 78)

And here is how the forecasts have changed (in percentage points):

(Source: WEO, own calculations)

(The current forecast for 2011 has been contrasted with the one published a year ago. The current forecast for 2012 is compared to the one done in April of 2011.)

Observations:

• “The-winner-takes-it-all” Germany will have better growth and less unemployment than expected for 2011.
• Despite having underestimated German inflation for 2011, the IMF reduced its forecast for 2012.
• For Italy, Ireland and Greece it’s all downhill in terms of growth (2011 and 2012), CPI (upwards revisions for both years) and unemployment (how are those bail-outs working for you, Greece?).
• Everybody except Germany now will have less than 1% of real GDP growth in 2011. This comes with the added benefit of accelerating inflation.
• Everybody will continue to finance Germany’s positive trade balance – and this is why default without Euro exit will not change much for the PIIGS.
• The German-Greek “game of chicken” (1) will continue and therefore guarantee the Euro zone being constantly on the edge of the cliff.