The chancellor could bask in promising IMF growth figures – but he'd be wiser to ask how it could have been better
Revenge, according to the old proverb, is a dish best served cold. Six months ago George Osborne was furious when the International Monetary Fund used its influential World Economic Outlook (WEO) to roast the government's austerity programme. Olivier Blanchard, the IMF's chief economist, said the UK was playing with fire in its refusal to ease the pace of budget cuts.
This was April, when the talk was of whether Britain would sink into an unprecedented triple-dip recession. Since then, fresh data has revised away the double-dip recession and economic growth has returned. The 0.7% expansion in the three months to June looks set to be at least equalled, if not bettered, in the third quarter. The debate in the City now is not about the long-forgotten triple dip but about whether Osborne is overcooking things with his Help to Buy scheme for the housing market.
So game, set and match to the chancellor, then? Not quite. In one important sense Osborne gets his pound of flesh from the IMF's latest WEO. The fund's growth forecasts for the UK have been revised up by 0.5 percentage points this year and by 0.4 percentage points in 2014 – comfortably the biggest increases for any developed country. What's more, the IMF predictions still look a bit low given recent developments in the economy. Further upgrades from the 1.4% and 1.9% pencilled in for this year and 2014 still look likely, unless the global economy nosedives in the coming months.
But Blanchard was quite right to say that the pick-up in activity in the UK during the summer does not settle the debate about how the economy might have fared under an alternative strategy. All recessions come to an end eventually, so the real question is whether the upturn in Britain was unecessarily delayed by VAT increases, cuts in capital spending and the chancellor's comparison of the UK with Greece. Academic research by the economist Alan Taylor suggests that UK GDP would be 3% higher today without austerity.
What's more, the fund makes the point that it will take many years for the UK to make good the output losses from the deep slump and sluggish recovery of the past five years. With borrowing costs at a historic low, it is still calling for the government to consider an increase in borrowing to fund much-needed improvements in infrastructure. This would help the economy's future growth potential and make the recovery better balanced.
There is a final reason Osborne may decide not to rub it in when he arrives in Washington for the IMF's annual meeting this weekend. The gathering of finance ministers and central bank governors takes place under the cloud of a possible US debt default and there are fears that this could provide the latest setback to a global economy that still bears the scars of the near financial meltdown of five years ago.
The IMF has some harsh things to say about the way the US is conducting its financial affairs in its latest WEO, published in Washington on Tuesday. It says, correctly, that crude indiscriminate spending cuts under the sequester programme are a bad way to repair public finances battered by the deep recession of 2008-09. It notes, again correctly, that the game of chicken over the debt ceiling could lead to more uncertainty and hence lower growth.
What concerns the fund is that American politics has the potential to destabilise the global economy at a particularly delicate moment. The big emerging market economies – China, India, Brazil, Russia and South Africa – are not growing as quickly as they were a couple of years back. The summer saw downward pressure on the currencies of developing countries as a result of anticipation that the US Federal Reserve would begin to taper away its $85bn-a-month stimulus programme from this autumn. Europe is only just emerging from a double-dip recession. These things also concern the chancellor. At the moment he has a nice little recovery going. But with an election little more than 18 months away, he cannot afford for it to falter.
International Monetary Fund (IMF)George OsborneEconomicsRecessionGlobal recessionGlobal economyEconomic growth (GDP)US economic growth and recessionLarry Elliotttheguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds |
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