Yesterday we got the IMF forecasts for the UK economy out to 2016 and I as noted they are considerably weaker than what the OBR are currently estimating.
What I didn’t quite realise yesterday was just how bad the medium term IMF forecasts actually are.
Since around 2008/2009 there has been an undercurrent to the UK economic debate asking if we will experience a Japan-style lost decade, a decade of low growth. Well, on these IMF forecasts that debate is pretty much over because that’s where they think we are heading.
The chart below shows UK GDP 2007-2016 (2012 to 2016 IMF forecasts) compared to Japan 1991-2000.
The really striking thing is how similar the economic debate in Britain today is to that of Japan in the 1990s. Something previously noted by Paul Krugman:
The slowness with which Japan’s economy deteriorated was in itself a source of much confusion. Because the depression crept up on the country, there was never a moment at which the public clamoured for the government to do something dramatic. Because Japan’s economic engine gradually lost power rather than coming to a screeching halt, the government itself consistently defined success down, regarding the economy’s continuing growth as a vindication of its policies even though that growth was well short of what could and should have been achieved. And at the same time, both Japanese and foreign analysts tended to assume that because the economy grew so slowly for so long, it couldn’t grow any faster.
So Japan’s economic policies were marked by an odd combination of smugness and fatalism – and by a noticeable unwillingness to think hard about how things could have gone so wrong. (My emphasis)
His point that the government in Japan defined growth that was “well short of what could and should have been achieved” as a sign of success is vitally important. No-one is suggesting that UK GDP will continue to contract until 2015, but that isn’t what a ‘lost decade’ means. The IMF thinks that the economy will grow (overall) in 2012, 2013, 2014, 2015 and 2016, just not fast enough. Weak growth cannot be allowed to be defined as success.
On the current IMF forecasts GDP will be around 10% higher in 2016 than it was in 2007. By any historical measure that is an awful result, as the graph below makes clear:
We’re half way through what is turning out to be an awful decade and yet the government refuses to take action, what a depressing state of affairs to be in.