What the IMF says about the UK and global economy

by Stephen Tall on July 17, 2012

The economic headlines have been dominated by the IMF’s latest forecast, with seemingly grim news: UK economic growth forecasts slashed by worried IMF.

The Guardian contrasts the IMF’s downgraded prospects for UK growth with the more stable picture for other countries:

The IMF said in its latest World Economic Outlook that GDP across the UK – which is currently in recession – will increase by 1.4% in 2013 – a 0.6 percentage point cut from its previous 2% forecast. Only Spain has a bigger downgrade next year after the IMF said it will lose 0.7 percentage points and maintain its run of recessions for a third 12-month period.

A little oddly the IMF doesn’t explain its reasoning for the downgrade of the UK. As the table below shows, the forecast 1.4% UK growth in 2013 is the same as that for Germany, and ahead of the Eurozone area:


(Data from IMF World Economic Outlook Update)

Here’s what the IMF does say about the economic conditions in the UK:

In the United Kingdom, the cyclically adjusted deficit will continue to decline this year and next, but by less than last year, which is fitting given the weak growth outlook. The government has appropriately maintained its commitments to balance the structural current budget within five years and to put net debt on a declining path, with additional consolidation in store in 2015–17.

And the most likely imminent threat to the economy, according to the IMF? Other than uncertainty in the growing emerging markets of Brazil, China and India, the political gridlock in the US has the potential to cause real problems:

Outside of Europe, the U.S. fiscal cliff —the convergence of tax cuts expiring and automatic spending cuts kicking in at year-end—has received increased focus in recent weeks. If no policy action is taken, the fiscal cliff could result in a fiscal tightening equivalent to more than 4 percent of GDP. As year-end approaches and uncertainty increases, another bout of political brinksmanship —similar to that seen in August 2011 in discussions of the U.S. debt ceiling—could trigger increased market volatility. … there is clearly the potential for a significant adverse market reaction should market participants reassess the likelihood of a fiscal cliff, given its potentially severe effects on the U.S. economy.

* Stephen Tall is Co-Editor of Liberal Democrat Voice, a Research Associate for the liberal think-tank CentreForum, and also writes at his own site, The Collected Stephen Tall.