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IMF: Anatomy of a downgrade

9 October 2012

Growth forecast downgrades should come as no surprise these days, but when they come from the IMF they naturally command a fair bit of attention. In fact, the IMF’s downgrades for annual GDP change — to -0.4 per cent in 2012 (from +0.2) and +1.1 per cent in 2013 (from +1.4) — simply bring them into line with the consensus. The below graph shows how the average of independent forecasts for 2012 growth has changed over the last few  months:


Given that the ONS shows the economy having contracted by 0.7 per cent in the first half of this year, the IMF’s forecast of a 0.4 per cent contraction for the whole of 2012 implies slight growth of about 0.2 per cent in the second half.

And, as always, growth downgrades have a nasty knock-on effect for George Osborne’s deficit plans. Whereas the IMF had predicted in April that borrowing would be down to 6.6 per cent of GDP in 2013, it now predicts it’ll be 7.3 per cent. And whereas in April it forecast that the debt-to-GDP ratio would begin to fall (slightly) in 2015, it now doesn’t have it falling until a year later. That’s further evidence that Osborne may well have to ditch his supplementary fiscal target — to see that ratio falling in 2015-16 — in his Autumn statement.

A couple of weeks ago, Mervyn King told Channel 4 that it would be ‘acceptable’ to miss this that target ‘If it’s because the world economy has grown slowly’. And the new IMF report does provide such cover, with similar growth forecast downgrades for advanced economies like the Eurozone, Japan and Canada and for emerging ones like China, India and Brazil.

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  • 2trueblue

    The IMF predicts……. oh lets all get depressed. This is an organisation that really does not know where anything is going, much less how we got there. Austerity measures are OK for areas in the euro but not for the UK.
    Some very good wines coming out of Spain and the prices are great, every little helps!

  • Charlie the Chump

    As Fraser has said in earlier posts no-one can believe in any economists forecasts, their models do not follow the New Normal as Zero Hedge would put it.
    This IMF “prediction” is as worthless as all the rest.

    • telemachus

      Not only do we not believe these clowns but we all know that this contraction is not necessary.
      Why oh why do we have to go through the tedium of Tory austerity drivel this week when just last Monday we had the upbeat message of build for growth
      We need our politicians to inspire and motivate

      • Colonel Mustard

        Do you think you inspire and motivate? I find all your comments tedious and depressing. It depresses me that when the British have so much potential as a nation they are dragged down by people like you with false premises and false promises. Without the great dead weight of socialism this country would soar. Your propaganda is like a millstone round the neck of the people.

  • salieri

    Isn’t it time to downgrade the IMF?

  • bloughmee

    So King Mervyn finds it “acceptable” if the government does what it is obligated to do? Why thank you your majesty! We shall be forever grateful for your solicitations. Now then, can you print up a few more bales of notes for me? My hearth fire is running down.

  • toni

    “The economy also appears to be picking up. A period of sustained, albeit unspectacular, growth now seems likely. This should help stretch the coalition lead on economic competence.”
    Posted by Mr. Forsyth six days ago.

  • Rob Broome

    Um, what if the NIESR’s prediction of 0.8% growth in the last quarter comes to pass? While the economic outlook isn’t brilliant a lot of these projections have seemed overly pessimistic especially when you bear in mind that the fall in GDP in the last few quarters was a lot less than initially reported.

  • anyfool

    It is amazing that people will commit to paper their analysis of current financial positions backed up with rubbish from the IMF and the ONS, both of these worthless institutions are now in the grip of political pygmies who lean to the left and love putting ever more restrictions on personal endeavour and freedoms.

  • ToryOAP

    NIESR believe the economy expanded by .8% in the last quarter. I have very little (if any) faith in the IMF and their predictions. I believe the UK will grow considerably in the coming 12 months. Whether that is down to Osborne is another matter but I expect that businesses will rather be here than in the EU and we will ride the wave.

  • HooksLaw

    Your last paragraph is the main, indeed the whole point. The IMF predict UK growth of 1% next year; they predict 0.4% for France

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