Tuesday, September 20, 2011

What the IMF's new GDP forecasts mean for semis

Today the International Monetary Fund decided the entire planet's economic recovery is slower than thought, particularly in developed regions, so it's trimmed (and in some cases slashed) its GDP outlooks for both 2011 and 2012.

"The global economy is in a dangerous new phase. Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing," said the IMF said in its just-updated 2011 World Economic Outlook (WEO).

Overall global GDP is still seen at 4.0% in both years, but there's a gulf between the "Advanced" and "Emerging" economies. The IMF sees just 1.6% growth this year for the former, vs. 6.4% for the latter. In 2012 it's not much different, 1.9% vs. 6.1%. And within those anemic numbers are dark clouds for the US economic picture. Back in June the IMF saw 2.5% growth in 2011 and rising to 2.7% in 2012 -- now it's slashed those outlooks to just 1.6% and 1.9%. Other nations in this category (e.g. Euro, UK, Canada) have their two-year GDP outlooks lowered by up to half a point.

The new GDP projections also depend on a number of optimistic assumptions: that the EU debt crisis can be contained, that US fiscal turmoil can be quelled, and global financial market volatility smooths out. Government stimulus programs have to give way to private demand, and regions with heavy imports or exports need to balance themselves out. "If the assumptions are not met, global growth will be much lower," the IMF warns.

For the semiconductor industry, the revised IMF GDP forecasts are another dash of cold water on hopes of even a mild a bounceback in 2012. Last week Gartner kicked off the downgrade party by sinking its 2011 semiconductor forecast into the red, with a worst-case scenario of consecutive 2011-2012 declines (-2.2% and -4.9%) if global economies sputter.

Just days ago at his annual fall forecast presentation, IC Insights' Bill McClean cited a number of global GDP assumptions underpinning his forecasts for 2011 and 2012 (and beyond). Responding to the new IMF numbers, he agrees that if Europe's credit upheaval can be resolved "in a good way, our forecasts could still hold," though he admits there's "more downside than upside potential." If Europe's problems persist or widen, "a flat or negative semi market could be in store for this year and next."

McClean's GDP numbers are based on the World Bank, which he says calculates GDP in local currency divided by the previous year; the IMF uses a "purchasing power parity" method to adjust for seasonality differences and currency valuations. (The World Bank told SST it has nothing new to compare to the IMF's new GDP numbers.) As a result, he says the IMF numbers are about 10% higher -- so the IMF's new ~4.0% global GDP for 2011 would be more like 3.6% (McClean has 3.8% in his most recent global GDP assumption). But even so, the IMF update casts a pall over what might happen in 2012: that same discount would convert the IMF's new 1.9% US GDP for 2012 to 1.7% for McClean, vs. his current 2.8% assumption, and total developed from 1.9% (IMF) to 1.7% (vs. his 2.2%). -- J.M.

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