The IMF is hopeless at making economic forecasts, perhaps they should try trend following instead

The IMF consistently downgrades its economic forecasts. Rather than continuing to make such woefully inaccurate predictions, perhaps they should try trend following instead.

The International Monetary Fund (IMF) is hopeless at making economic predictions. Twelve months ago the IMF forecast that the UK would see growth of 1.6% in 2012, yesterday however, they said the UK would actually shrink by 0.4% this year, and just three months ago they thought it would grow by 0.2%.

The IMF’s mission is to “help ensure stability in the international system” and it does so by, “keeping track of the global economy and the economies of member countries, lending to countries with balance of payments difficulties, and giving practical help to members.”

Clearly then, the IMF plays an important role in trying to buoy global investor confidence, so it’s hardly surprising that it tends to err on the side of optimism when making its forecasts. However, they are so significantly and consistently wide of the mark that I’m astounded that they have any credibility left at all.

A simple Google search reveals the extent of the problem. A search of “IMF cuts forecast” produces 77,200 results, while a search of “IMF raises forecast” produces just 4,380 results.

Perhaps the IMF should stop trying to make economic predictions and turn its hand to trend following instead. Especially since that’s pretty much what they do anyway. As IMF Chief Christine Lagarde admitted back in September, “our forecast has trended downward over the last 12 months.” Spoken like a true trend follower.

For more on trend following trading see: The science & success of trend following.

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