Thursday, 23 April 2009

The 3.5% Growth Myth 2: The IMF Deception

The below is exactly what Alistair Darling said about economic growth in his Budget speech yesterday. I make no apologies for quoting it at length as the whole point I wish to draw out of it is one of contextualisation. I've added parenthesis to draw out the key elements.

"Mr Deputy Speaker, the UK went into this global recession with employment at an all-time high, inflation, public debt and interest rates at low levels. But no country can insulate itself from this worldwide downturn. The position here, as in every country, deteriorated in the autumn. In the last few months, world trade fell at the sharpest rate since 1945. As an open economy, the world's sixth biggest exporter of goods and the second largest exporter of services, we are affected by the collapse in demand in other countries. The unexpected severity of the recession has led the IMF to
downgrade its own forecasts for the world economy
three times since
October. We, as well as other countries as diverse as Japan and France, India
and the US, have reduced our growth estimates.

"Mr Deputy Speaker, the UK economy contracted by 1.6 per cent in the last
quarter of 2008. For the first quarter of this year, I expect the economy will again contract by a similar amount. And my forecast for GDP growth for the year as a whole will be –3 ½ per cent – in line with other independent forecasts. But
because of our underlying strength, the measures we are taking, domestically and internationally, I expect to see growth resume towards the end of the year.

"The IMF forecasts published today confirm the problems that all countries will face this year. But they also show that the British economy will suffer less than Germany, less than Japan, less than Italy, and less than the euro area as a whole this year. The British economy is diverse, flexible and resilient – which is why we can be confident in recovery. Next year, because of the pick up in world demand, the continuing benefit of lower prices, and the substantial recovery measures put in place, I am forecasting growth of 1 ¼ per cent in 2010.

"In future, the sources of our growth will be more varied – and we need to ensure we play to our country's strengths. It will increasingly come from an expansion in investment by businesses in the industries of the future, such as low-carbon, advanced manufacturing and communications. These industries,
together, are as important to the British economy as the financial services
sector. That is why it has been so important that we have increased investment in Britain's science base by 88 per cent in real terms over the last ten years.
Growth will also be driven by the opportunities to export as the global economy doubles in size in the next two decades. From 2011, I am forecasting that the economy will continue to recover, with growth of 3 ½ per cent from then on."

He repeatedly refers the IMF predictions from their report for yesterday, it adds gravitas does it not? You think that he is drawing from a wealth of experience to make his predictions for the future. What did the IMF figures say 2009 -4.1% and 2019 -0.4%. The only bit of fact that Darling does extract from the IMF figures is that the 2009 figure is better than the Eurozone -4.2%, Japan -6.2%, and Germany of -5.6%. Of course he fails to mention USA who take all the blame for this recession only dipping by 2.8% and Canada most closely aligned at -2.5%.

So therefore who are these other independent forecasts that he speaks off. Having reviewed all of yesterdays papers the most optimistic forecast I was for 2010 was +0.5%, the Times had 0.3% but suggested Darling would say 1%. Where oh where has he squeezed the extra 0.25% out of what was even deemed an optimistic prediction yesterday.

Maybe be he has discovered the golden fleece, or sold the Downing Street cat to a stranger in the street from some beans which are are growing very well in the garden of Number 11. Fee fi fo fum I smell the lie of an Darling tongue.

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