The IMF released its latest forecasts for the global economy yesterday. There was bad news, good news and more bad news.

There’s bad news for 2009. Good news for most of the world, including the UK, for 2010, but it’s bad if you are Germany.

Meanwhile, Capital Economics has got good news growing out of bad for Hungary and Romania. But in the case of Russia, the Czech Republic and Poland, it is bad news growing from the good.

Let’s begin with the UK.

The IMF now reckons this country will see its economy contract by 4.2 per cent this year. That is worse to the tune of 0.1 percentage points from its previous forecast three months ago. But for 2010, it has predicted a growth rate of 0.2 per cent. It had previously forecast a 0.4 per cent contraction, so actually that’s quite an upgrade. Alistair Darling forecast 1.25 per cent growth for 2010 in his budget, so the IMF is still a long way short of what our chancellor reckons. But even so, it’s a move in the right direction.

As for the global economy, it is now forecasting 1.4 per cent contraction this year, which is marginally worse than it previously estimated, but 2.5 per cent growth next year, a big improvement on its previous estimate.

Of the world’s largest economies, Japan and the US enjoyed the biggest upgrade. The IMF is now forecasting 0.8 per cent growth for the US in 2010, whereas it previously said it expected the US economy to be flat. As for Japan, it now expects a 1.7 per cent growth rate next year, compared to just 0.5 per cent when it last made its guesstimate.

Of all the countries on the IMF’s list, Germany is expected to see the worst performance overall, with a forecast contraction of 6.2 per cent this year and a 0.6 per cent contraction next. Spain is expected to contract by 4 per cent this year, and by 0.8 per cent next. Russia (6.5 per cent ) and Mexico (7.2 per cent) are expected to suffer the biggest contractions this year, but they are both forecast to expand next year, by 1.5 per cent and 3 per cent respectively. Not all forecasters have such a rosy view of Russia, however, as was pointed out here yesterday. There are even fears Russia could suffer a Japanese-style lost decade.

Turing away from IMF forecasts, Capital Economics came to a surprising conclusion re Hungary and Romania. The gist of this argument is as follows: things are so bad in these countries that they had to call upon the IMF for help. The IMF has made them slash government spending to repair the fiscal deficit. As a result, says Capital Economics, they will endure a more severe recession, but the recovery, when it comes, will be more sustained.

By contrast, Russia, Czech Republic and Poland are less likely to require IMF help, and as a result they will be blighted by a massive fiscal deficit for years.

But here’s the puzzle. If the recipe of more pain now, creating less pain in the future, works for Hungary, presumably the same applies to the UK? And yet, most economic forecasters seem to be in favour of big fiscal stimulus packages in the developed world.

Anyone got an answer to that riddle?

© Investment & Business News 2013