Now look, this is getting serious …
Today’s IMF World Economic Outlook really does make quite worrying reading. There are worrying forecasts for the global economy – the Fund is now describing the recovery as “weak and bumpy” and has cut forecast growth worldwide from 5% plus to 4%, “and even this lowered projection counts on a lot going well.”
Projections for UK growth have been cut even more sharply:
- Six months ago the IMF said that GDP growth this year would be 1.7%; this is now cut to 1.1%.
- Expected growth in 2012 has been cut back from 2.3% to 1.6%.
This follows the OECD‘s forecast that UK GDP would grow 1.4% this year and 1.8% next year. Remember that the Office for Budget Responsibility said in March that 2011 growth would be 1.7% and this would rise to 2.5% in 2012.
The IMF publishes the World Economic Outlook every six months, and this is the second successive downward revision. Other key figures are being revised in the wrong direction too:
The UK’s current economic strategy is predicated on export-led growth, especially in manufacturing. The downbeat forecasts for the global economy are a threat to this strategy, especially as the Fund expects that average global growth to consist of “fairly robust” in emerging and developing economies, but just 1.6% in the advanced economies – which is where the UK tends to be strongest.
The other element of our strategy, of course, is fiscal austerity. Here the IMF verges on the critical, noting that the interest rates the UK has to pay on government debt are very low, it raises the possibility of delaying the ‘adjustment’:
If activity were to undershoot current expectations, countries that face historically low yields should also consider delaying some of their planned adjustment (Germany, United Kingdom).
New statistics from the European Union also suggest that the government needs to ease expectations based on strong manufacturing growth. Eurostat figures for industrial production in July, showed that the UK’s annual growth rate was -0.4%, well below the EU average of 3.6% and the Eurozone’s 4.2%. The month-on-month figures were frozen for the second month running, leaving the UK well behind Germany and France.
Most worrying of all, Eurostat’s production index showed that UK industrial production is at just 89.5% of its 2005 level – in the European Union, only Greece, Spain, Italy and Portugal have a worse figure.
Finally, it may be time to start worrying again about a double-dip recession. Returning to the World Economic Outlook, the IMF is worried about what’s been happening in the stock market, as the organisation believes that equity prices can help predict recessions. Their model
paints a sobering picture about the likelihood of a doubledip recession in France, the United Kingdom, and the United States in light of the recent sharp drop in equity prices. … Assuming that the recent behavior of the equity markets in these economies during the third quarter of 2011 continues, the predicted likelihood of a new recession rises about fivefold for France and the United Kingdom (to about 18% and 17%, respectively) and eightfold for the United States (to about 38%).
This is a bit experimental, but if you add in the fact that everyone is revising down their forecasts for economic growth there’s a serious case for worrying about another recession. This country can borrow at historically low rates, this is surely the time to invest in jobs and growth.