Makes a change: IMF marks Brics down and UK up


It's worth savouring the novelty. Today the IMF raised its UK growth forecast for this year, and cut it for most emerging market economies, including China. I can't remember the last time we saw those two things together in an IMF report, but it's safe to say it's been a pretty long time.

In fact, the only part of today's update which sticks to the previous script is the forecast for the eurozone, which has been cut for the umpteenth time.

The Fund thinks that "delays in policy implementation" are helping to prolong the recession on large parts of the Continent. Well, there's a shock.

I'll say more about the emerging market forecasts in a second: they're the most significant feature of this latest report. But first, a few words about the UK.

Treasury folks will be smiling at the increase in the Fund's 2013 forecast, only a few weeks after the IMF suggested he should ease up on austerity this year to protect the recovery.

The Fund quietly repeats that advice, in this report, with a reference to "more gradual near-term fiscal adjustment" in key advanced economies. But Mr Osborne's advisers will surely be telling him to go easy on the "I told you so's".

After all, the Fund has been cutting its UK forecasts more or less continuously since 2010. This latest, modest, upgrade to growth in 2013, from 0.7% growth in April to 0.9% now, does not even cancel out the previous cut.

As recently as last October, the Fund was expecting the UK to grow by 1.1% this year. It's worth noting, too, that the Fund has not raised its expectations for 2014, when they are still expecting only modest growth of 1.5%.

The NIESR also has good news for the chancellor today: on the basis of its monthly GDP estimate, it now thinks growth in the second quarter will be twice as fast as in the first three months of the year: 0.6%. But we also found out there had been a sharp fall in manufacturing production in May - for the second month in a row. So the euphoria remains firmly on hold.

But back now to the global picture - and those emerging market economies that have been breathing a different kind of economic air to the likes of us for so much of this post-crisis period. The IMF's message is that there has been a change in the economic weather for them too.

Needless to say, the new forecasts will be wrong. they nearly always are. The precise numbers don't matter - but the size of the downward revisions are significant - and so is the underlying cause.

The Fund still thinks the likes of China and Brazil will grow more than twice as fast as the advanced economies over the next year or two, with growth of around 5%. But with so much room for "catch-up", it would be a surprise if they were not growing a lot faster than the "old" world.

The average cut for developing and emerging economies is only about a third of a percentage point, in 2013 and 2014, but the numbers are much chunkier for some. For example, the Fund has taken nearly a percentage point off the Russian and South African growth forecast for 2013 and cut the Brazilian forecast for 2014 by a similar amount.

The forecast for China had already been revised down, but this update takes another two-thirds of a percentage point from growth in 2014.

The reason for the change of heart is the same as we have all been banging on about for weeks: that increase in global interest rates over the past few months, in response to the US central bank's talk of tighter policy.

We saw last week both the British and European central banks respond to that change in the global financial weather with an outbreak of policy "guidance". Alas, the choice for emerging market economies is much harder, for all the reasons I've discussed in the past.

As the Fund puts it: "Many emerging market and developing economies now face a trade off between macroeconomic policies to support weak activity and those to contain capital outflows." In other words, to keep global investors in, these countries need to raise interest rates, but to save growth, they want rates to come down.

That is a very old choice for any country that is dependent on foreign cash. But it's no easier today than it was 20-30 years ago, when some of these countries were just starting to "emerge".

In fact, many would say the pressure on emerging market economies was greater, now that their populations have had a better taste of what happens when the economy enjoys rapid growth.

The Fund's new forecasts assume that some of the recent rise in long-term global interest rates will reverse itself, and the volatility in emerging financial markets will subside.

Brazil and others will be hoping that's right. As the Fund itself notes, it is quite possible that it is not - in which case, we can expect more downward revisions to growth in these "fast-growing" emerging markets.

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

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  • rate this

    Comment number 111.

    Things are slowly improving but still massive amounts debt left behind by the incompetent Labour 'government'
    I hope the UK don't wreak by letting La La Labour back in charge of our fiscal policies.
    This would put us back years and what chance we have of getting our finances under control, will go right out the window with Balls

  • rate this

    Comment number 110.

    IMF forecast - new oxymoron ?

  • rate this

    Comment number 109.

    Oh, what can we make of what Steph says?

    After all, as William Hague would have it, she's just another "stupid woman" surely?

  • rate this

    Comment number 108.

    To save the all important and truly wonderful Banking system house prices will be encouraged to rise at least until the underwater mortgages surface again.

    I would very much like to believe there was genuine growth in the real economy but I suspect it is just the funny money otherwise why is manufacturing sinking again.

  • rate this

    Comment number 107.

    31. curious

    The BBC are still using the disappearing High Street .... Also Supermarkets dont just sell food anymore. They pulverise the high street as well with convenient parking and lower prices
    You have it almost spot on, the bit you missed is the effect of Councils, their attitude to parking, cars, and business rates - you would have to be very good to make money from a high street store.

  • rate this

    Comment number 106.

    Well.. it gives hope to the people who don't want the "BRICS" to be up and strong.
    Only developed nations face the recession and in that economic weather emerging markets enjoy the new economic air.
    "BRICS' is challenge to the capitalism and market based economies. Offcourse no one wants 'Central Based idea of Economy" to dominant.

  • rate this

    Comment number 105.

    The BRICs' economic houses of cards look increasingly shaky. When it starts to collapse, as now in Brazil (and perhaps soon in China and India), we might expect to see serious social unrest.

  • rate this

    Comment number 104.

    In the1920s easy credit with inducements to lend, lend, lend fueled a bubble market in stock where the stock itself was the only collateral for the loans.Glass Steagall and other mechanisms were created to assure commercial, savings banks would be 100% safe for depositors by regulating loan risk.Removing it allowed easy credit to fuel a housing market bubble, houses were the collateral.Same result

  • Comment number 103.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 102.

    100.sieuarlu What's worse, their imbecility recreated the same conditions of the 1920s.
    Yup, its obviously genetic - maybe castrate this generation of banksters.
    Just as they kill off a generation of mortgagees every 30 years - looking for new blood.

  • rate this

    Comment number 101.


    Even the facts you produce are opinions. You may think that numbers can't lie but I can assure you they can. It is all about how you tell them. I am constantly advising people that it is not what you do that is important but how you do it.

    So far this government has not invaded a foreign country looking for things that aren't there and fibbing about it. I hope they stay that way.

  • rate this

    Comment number 100.

    95 Actually...they did. Around 2000.For example Alan Greenspan.They talked as though the road was paved with gold out to the foreseeable future.Dow 40,000 was just around the corner and Dow 1 million by the year 2100.That as they unwittingly engineered the worst bust since the great depression of the 1930s.What's worse, their imbecility recreated the same conditions of the 1920s.They didn't learn

  • rate this

    Comment number 99.


    One asssumes they are given data from the national governments, in which case their sources are highly dubious.

  • rate this

    Comment number 98.

    @97. nfarmilo
    North south divide? What, North London, south London? Only part Stephanie would have a clue about. On another note, I am no longer sure there is a North/South divide - both ends of the UK are well and truly in it, the only exceptions being Cameron/Blairs landlord friends and a few bankers.

  • rate this

    Comment number 97.

    Growth where in the UK ? Will we ever see anything from Stephanie on the North-South divide ?

  • rate this

    Comment number 96.

    Yup, good news, of course if your total production is two cans of beans adding a 3rd can is a huge increase... this country has been destroyed by both Labour and Conservative and is now such a wreck that anything seems a miracle.
    How much has been spent on the now officially broken universal credit software - developed abroad of course

  • rate this

    Comment number 95.

    93. sieuarlu - I don't think any reputable economist ever talked about an end to boom and bust. Gordon Brown and his sidekick Ed Balls did, but then they're not what one could describe as either reputable, or economists, or reputable economists, are they?

  • rate this

    Comment number 94.


    At last you say what you mean - you disagree there's a difference even though hiterto all you have said was that all politicians lie.....

    ....I go back to offered to offering you the EVIDENCE, not just opinion.....

    there's plenty more too...

  • rate this

    Comment number 93.

    If I wanted to be a successful economist the first thing I'd do is throw my computer away.Those models don't work.They seem to get it wrong every time.The same economists who told us there'd be an end to boom and bust, who created the bubble market, who failed to predict the depression (not recession) THEY created are getting it wrong now.Britain tied to failing Euroland looks set for a tumble.

  • rate this

    Comment number 92.


    I can say what I like and you can write what you like. At the moment it is a free country.

    I am sorry but you declared there was a difference in spin between Blair's government and this one in such a way to imply that the current government was spinning more. I beg to differ. I accept entirely that lying is the currency of government but there is a spectrum and Blair went to the extreme.


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