IMF looks ahead


The global economy is recovering, but not fast enough for most people to notice the difference. Whether it's growth, inflation or government borrowing, that's the message from the IMF's latest World Economic Outlook. And nowhere more than in the UK.

For the advanced economies as a group, the IMF is now expecting a slightly slower recovery than it was in January, with growth of 1.2% in 2013 and 2.2% in 2014.

The UK forecast has been marked down more than most: to 0.7% growth in 2013 and 1.5% in 2014. It's the only country in the G20 to have the 2014 forecast revised down by more than 0.1%.

Overall, the forecast is not that much worse than it was in January. But with world stock markets up 15% since last summer, you might have expected the growth forecasts finally to be going up.

Unfortunately, the real economy is still quite a long way behind the financial markets, and the IMF doesn't seem to think it will catch up any time soon.

It says "financial conditions remain highly vulnerable to shifts in market sentiment, as evidenced by the renewed volatility in the wake of the inconclusive outcome of Italy's elections and recent events in Cyprus".

There is some good news on inflation - at least, if you're talking the kind of inflation that comes from rising commodity prices.

Though global commodity prices have risen 12% since last June, the Fund expects rising world supplies to bring down global energy prices by 3% in 2013. It also expects food prices to fall by 2%.

We had a taste of some of that today, with the price of Brent crude falling below $100 a barrel for the first time in ages. But the consensus among UK forecasters is that we will see inflation go higher than today's 2.8% - to more than 3% over the summer - before it finally comes back down.

Does the IMF think the Bank of England should worry about inflation staying higher for longer?

Hardly. In fact, like the Chancellor and the incoming Bank of England governor, Mark Carney, the Fund seems to think the Bank of England should be even more focused on supporting growth than it already is. (And, implicitly, even less concerned about above-target inflation).

And the chancellor himself? Any word from the IMF on whether he, too, should be easing up in his plans for squeezing the budget?

I know regular readers will be excited to hear the latest instalment in this saga (for previous ones, see here and here).

The answer is... the IMF seem to have put their UK fiscal advice-making machine on hold. The report merely repeats what it has said before - that "greater near-term flexibility in the path of fiscal adjustment should be considered in the light of lacklustre private demand". It does not say what, exactly, that kind of more flexible path would look like.

That allows the Treasury to claim the chancellor has already followed the Fund's advice, since the Fund now forecasts he will make slower progress cutting the structural deficit over the next few years than previously thought. Also, the pace of the tightening in the UK - at about 1% of GDP a year - is broadly in line with what the IMF recommends for advanced countries generally.

But it's the Treasury making those connections. Not the IMF. In today's press conference, the chief economist, Olivier Blanchard, said explicitly that the UK could consider a more moderate pace of fiscal tightening, beyond what the government had already done. But he didn't press home the point, or expand upon it. Apparently we will have to wait for the Fund's detailed annual report on the UK, in the summer, to get any more.

The report does have one other piece of bad news for the UK: it thinks our current account deficit is going to get even bigger. You'll remember I highlighted last year's terrible deficit, of 3.7% of GDP, when it came out. That was already one of the worst figures on record.

Now the Fund expects the gap between what we earn in the global economy, and what we spend to rise to 4.4% of GDP in 2013, and nearly that high in 2014 as well. That is the highest since 1989 and the second highest on record.

Only six months ago, the Fund thought Britain's current account deficit in 2013 would be "only" 2.7% of GDP. Clearly there is something going badly wrong with Britain's balance of payments which goes well beyond the slow pace of recovery in the eurozone - and has yet to be fully explained.

Whether it's rebalancing the economy or mending the budget, the broader lesson is that the chancellor is not fixing our problems nearly as fast as he hoped. And nor is the global recovery.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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After 11 years at the BBC, I'm leaving for a new role in the City.

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  • rate this

    Comment number 53.

    allegedly, one of the causes of the 1929 crash was the sudden drop in commodity prices cf 2013.
    All the hot money that was in commodities has to go somewhere chasing yield.
    IMF, GO and budget whatsitsname forcecasts are baloney!
    2.8% inflation is a lie and every shopper in the real world knows it.
    We the people are still being lied to and conned by politicians AGAIN.

  • rate this

    Comment number 52.

    if you have an increasing population & no growth it results in increased unemployment, if economies have contracted (like recently) that compounds the problem & you get mass unemployment. One person’s purchase is another person’s income. If there is not enough spending then someone has no job. it doesn't have to rely on finite resources if energy etc is produced from renewables

  • rate this

    Comment number 51.

    no self industries-no inward growth - i think for another 5 years because a global slowdown , except in bubble capitols such as London etc oh yes capitalism of course!

  • rate this

    Comment number 50.

    Is this the same IMF who didn't see the global financial crisis coming?

    You would be better off getting a prediction from Mystic Meg.

  • rate this

    Comment number 49.

    All that is really happening is that governments and financial organisations [like IMF] are trying desperately to reduce debt by any and all means. They have no money and no sustainable way to borrow enough - so they have three options:

    1. More tax to pay debt off
    2. Print more money to inflate it away
    3. Freeze or reduce wages to 'grow' the economy

    Who d'ya suppose loses in the long term?

  • Comment number 48.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 47.

    Why the obsession with growth? Economic growth is based on the assumption of continued consumption of finite resources, it's not sustainable? What the planet provides us with is finite the value of these resources is never factored into economics only the cost of extraction. Finite resources have an infinite value but this is consistently ignored. Forget growth & expect less it's common sense.

  • Comment number 46.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 45.

    Every time the IMF revises its growth forecasts they are always revised down. I wonder why that could be?

    This is the end of a credit cycle and only bad things await. Why is this so hard to understand and so impossible to report?

  • Comment number 44.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 43.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 42.

    For the economy to grow, we have to get gradually better at doing our
    industrial processes and also the processes themselves must be
    sustainable. If our economy is built on too much unsustainable
    activity, then inevitably we will see diminishing returns as natural resources become scarcer and more expensive.

  • rate this

    Comment number 41.

    The Balance of Payments deficit is beginning to reflect the gradual demise of the North Sea oil benefits.
    There is indeed a sense of irony in the timing of these numbers and the burial of the person who spent the Oil revenues on paying out benefits to the then newly unemployed.
    The current government, bereft of oil revenue, is now cutting benefits. RIP.

  • rate this

    Comment number 40.

    Brave man, putting your forecasts for all to see.

    Bravo. Just hope that you are right.

  • Comment number 39.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 38.

    Are we still correlating stock markets upside performances to the real economies’ potential improvement? Git over it. Stock markets are rich men’s game, no different from race horses, casinos and what else rich gamblers love to punt.
    After the Global Credit Crises, the rich should bet all on the stock markets. Major Central Banks have written all the puts to give comfort to the gamblers.

  • rate this

    Comment number 37.

    So long as Gideon Osborne insists upon flatlining demand and refusing to make banks lend to those firms who want to do business, there can be no hope of any recovery. This economic slump is worse than the 30's but, even then, the USA recognised that only demand stimulation was capable of lifting an economy out of the depression. There can be no recovery based upon enforced austerity ..

  • rate this

    Comment number 36.

    33.Jericoa " the debt by stealing savers deposits through the QE policy. In effect QE ensures higher inflation than interest rates. Savers are being robbed "

    Precisely. The state can, and will, erase its debts by inflation. State employees have pensions which are inflation proofed. The state can, and will, destroy private sector savings, pensions, assets and incomes to protect itself.

  • rate this

    Comment number 35.

    An ongoing roadblock to progress is the complete inability for open recognition of what is wrong with UK PLC by our leaders and by the senior management of our companies and institutions. Until there is open recognition of the issues then root and branch reform cannot happen, as the population in general continues and prefers to live in La La Land. We are and should be better than that.

  • rate this

    Comment number 34.

    A business, country or gov is like a colander under a water tap. The water that comes in at the top is income, water escaping through the holes is expenses, the water that runs over the rim is the profit (-ve deficit for GO), which we want to increase

    What’s the best way to reduce the deficit: open the tap to increase the flow or chase around trying to stop the leaks from all the little holes?


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