On Thursday, the International Monetary Fund (IMF) said the global economy will grow next year, but cautioned the recovery will be sluggish. The IMF added that the recovery could even "stall out" if policymakers assume the slump is over. The IMF's recent outlook, however, is better than July's outlook, as the IMF predicts better growth in 2010 thanks to "strong public policies ... that have supported demand and all but eliminated fears of a global depression." As for the recovery, the IMF believes that it will be subdued and "well below" the growth seen before the economic crisis. The group added that there is a "significant risk" of a reversal, noting that central banks in advanced economies need to wait until the recovery is on firm footing.
The monetary monitor also believes that external pressures like rising oil prices, a flu pandemic, political events, or protectionism could hamper the recovery. The IMF's statement matches the one reached by the G-20 summit in Pittsburgh last weekend.
What does this mean for the current rally? I believe it means we need to treat the rally with caution. The economy has come a long way this calendar year, but we need to understand that it could turn on a dime depending upon data.
Yesterday was a good example of this phenomena, as the morning looked good before the Chicago PMI data, which sent the indices plummeting before they managed to stage a recovery to finish only slightly in the red.
One thing is certain, uncertainty will continue to dominate while the economy continues its long road to recovery. It's not over folks, we have a long way to go -- and patience will be needed.
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