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IMF's unwavering confidence in Plan A

A year ago, the International Monetary Fund said that Britain should only reconsider its fiscal plan if GDP was significantly worse than its forecast. At that point it was projecting economic growth of 2.3%.

Roll on to today and the Fund has slashed its forecast for the UK economy down to -0.4%. Most economists would consider that significantly worse than was previously being forecast; but the IMF’s verdict? That, once again, the UK has the “right mix” of policies and should only reconsider its fiscal plan if GDP is significantly worse than its forecast.

It begs the question of what exactly would constitute a GDP disappointment. But at least the IMF has at least been remarkably consistent in its comments on the UK economy.

Here is a quick recap of what it said in recent years, as its projections for economic growth collapsed.

Oct 2010

Medium term GDP  forecast: 2.5%

Verdict: “if growth threatens to be substantially lower than is currently forecast in any country, in the UK or any other country, then the fiscal plan should be revisited.”

June 2011

2012 GDP forecast: 2.3%

Verdict (John Lipsky): “We consider the current deviations from forecast represent temporary factors and that the current policy mix strikes us as appropriate.”

Sept 2011

2012 GDP forecast: 2.3%

Verdict (Olivier Blanchard): Policy should only be loosened if growth threatens to slow down substantially relative to what we are forecasting… There is a moment at which things are so bad, if they get there, when you actually have to revise your plans. We do not think that the UK is quite there yet.

May 2012

2012 GDP forecast: 0.2%

Verdict (Christine Lagarde): “If the economy turns out to be significantly weaker than forecast, fiscal easing should be considered.”

October 2012

2012 GDP forecast: – 0.4%

Verdict (Jorg Decressin): “Would expect the economy to pick up during the second half of this year and early next year, but if it doesn’t do so then maybe you would have to revisit the fiscal plans. But at this stage that’s not what we are forecasting.”

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