The risks of risk management | Bangkok Business Brief

Earlier this month, the International Monetary Fund declared in its World Economic Outlook that the global economic recovery, which was already quite weak, had grown even weaker. Growth in major emerging market economies has also been lower than earlier forecast, particularly in China, India and Brazil. Newly industrialised Asian economies such as Hong Kong, Taiwan, South Korea and Singapore are also expected to see slower growth.

Bangkok Post

Despite sounding pessimistic about the growth outlook, the IMF revised down this year?s world growth forecast by just 0.1 percentage point while maintaining its growth forecast for the euro zone _ the region that is on the brink of collapse from its sovereign debt problems.

But looking closely at its record, we see the IMF made a large forecast error during the recent global financial crisis. In July 2008 _ two months before the collapse of the investment bank Lehman Brothers _ the IMF forecast the US would grow by 0.8% in 2009, euro-zone countries by 1.2% and the world as a whole by 3.9%. Even right after Lehman Brothers went bankrupt, the IMF still projected the US economy would grow by 0.1% in 2009, euro-zone countries by 0.2% and the world as a whole by 3%. The outcomes were the exact opposite, with growth in the US, the euro zone and the world declining by 2.4%, 4.1% and 0.6%, respectively.

In other words, even a well-respected organisation like the IMF can call it completely wrong in this increasingly complicated and integrated world. Given that correct risk assessments are hard to come by, investors have tried to figure out how to protect themselves from black-swan or tail events _ occurrences that are a surprise to the observer, have a major effect and after the fact are often inappropriately rationalized with?

Full story from?Bangkok Post?at?http://goo.gl/qdJAs

Source: http://www.bangkokbusinessbrief.com/2012/07/27/the-risks-of-risk-management/?utm_source=rss&utm_medium=rss&utm_campaign=the-risks-of-risk-management

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