Tuesday, July 13, 2010
In early July the International Monetary Fund revised the economic growth projections which it had made in April. To the surprise of no one except perhaps George Osborne and Angela Merkel, the countries that maintain a fiscal stimulus had their growth rates adjusted upwards, while those committed to "sound" finances and budget cuts saw their prospects down-graded.
As the table shows, the IMF raised the projections for both the US and Japan for 2010, also for 2011 in the case of the US, for a two-year up-grade of half a percentage point. For the UK and Germany the story was the reverse, lower growth for 2010 and also 2011 for the UK, and decline for Germany in 2011.
Projection, April 2010
If you look at the constituencies that were demanding 'fiscal consolidation', telling anyone who would listen that spending cuts would reduce the deficit and trigger renewed growth, it seems that they are the last people to believe their own propaganda. The ratings agencies are still threatening to downgrade Britain's credit rating, as the Office for National Statistics reveals that the UK only avoided falling back into recession earlier this year because of the enormous fiscal stimulus that is now being withdrawn. Businesses aren't buying it either, as Ernst & Young warns that as the fiscal noose tightens, corporate investment is likely to slump in response to reduced profits. And if you look at consumption, whatever the public tell opinion pollsters, they aren't behaving as if they believe the cuts will put recovery on track. This suggests that when people are asked by pollsters what they think of the cuts agenda, they are thinking of what they read in the newspapers and hear on television, what's been relentlessly churned out for a couple of years now. They are thinking about the propaganda, not about how they see their own well-being affected by the cuts. That won't survive 2011.