It’s starting to feel like the IMF will only ever be a bearer of bad news. Today, it announced an update to its regular World Economic Outlook that global economic growth will be 3.5%, down from 3.6 for 2012, and the following year it will be 3.9% down from 4.1%. Only a couple of basis points in it, but over the whole world economy, that amounts to many billions of dollars. Worst of all, it revised the UK’s forecast down from 0.8% growth (which it had predicted in April) to 0.2%. The forecast change for the UK was the largest downgrade of any country except India. Shucks!
And if you weren’t disappointed enough on reading those forecasts, the IMF kindly threw in one extra detail for us to digest: those are ‘best case scenario’ figures, meaning there’s a jolly good chance they could be even worse than that. The Fund puts its forecast changes down to the deteriorating situation in the eurozone, as well as a slowdown in the growth of emerging economies including China and India. Furthermore, the body is worried about circumstances in the US and Japan which both have enormous deficits and have suffered growth slowdowns in the first half of 2012.
Significantly, the IMF specifically pointed out that if the economic outlook across Europe and in the UK worsened, then Britain’s government should chill out a touch on austerity measures. It said: ‘In case of a major shock to the recovery, fiscal policies may need to be recalibrated in countries with fiscal space, in the context of a reassessment of the overall macroeconomic policy mix.’ That’s a real mouthful, and we’re sure it’s designed to bamboozle the average human being, but the point is that if things get any worse then austerity could start to have a negative impact on the UK’s economic stability.
With all of this in mind, here’s hoping the recent bailouts and rescue packages agreed by EU leaders are enough to stop the financial crisis getting any worse…