The IMF is right to downgrade its forecast for the UK
Three months before the start of the biggest financial crisis since the Wall Street Crash, the International Monetary Fund confidently predicted that the world economy looked “well set” for robust growth in 2007 and 2008. Sure there were risks, said the IMF, but these seemed less threatening in April 2007 than six months previously.
The IMF was not, of course, the only organisation that failed to spot economic armageddon coming – merely the one with the highest number of PhDs on the books. But if the fund’s patchy past record means all its forecasts should be treated with caution, its growth downgrade for the UK looks perfectly reasonable.
Official data for the state of the British economy in the first three months of this year were not available in April when the fund produced its half-yearly World Economic Outlook, but it assumed something stronger than the 0.2% expansion that was eventually announced. Even if the second, third and fourth quarters live up to the IMF’s expectations, the weaker first quarter arithmetically feeds through into growth for 2017 as a whole of 1.7% rather than 2%.
Although Wednesday’s first estimate of second-quarter growth will show an improvement on the first quarter, it is clear the UK economy was not going gangbusters in the spring either. It looks likely that the UK posted growth of 0.3% or 0.4%, suggesting the economy expanded at an annualised rate of 1% in the first half of 2017. A further IMF downgrade to about 1.5% in the autumn looks probable unless the stronger growth the IMF sees in the eurozone and the bigger emerging markets is sustained and leads to higher demand for UK exports.
The IMF thinks the global economy is on the up but is still hedging its bets. It is concerned that China is sustaining growth through a credit bubble. It is worried about Donald Trump launching a trade war. It fears overvalued financial markets could be heading for a fall. Such caution is perhaps a decade too late, but understandable. The IMF has no desire to be caught with its trousers down a second time.