The International Monetary Fund (IMF) thinks that this year we are in for the slowest global growth since the crisis. The second of its biannual forecasts has pencilled in a 3.1% increase in world GDP for 2015, down from a 3.3% estimate in July. The main culprit is the downturn in emerging markets, whose growth will slide for the fifth year in a row amid China’s slowdown and reduced demand for commodities. Britain is a bright spot, however. The IMF expects “continued steady growth” here, with output growing by 2.5%, up slightly from the July forecast.
What the commentators said
The IMF’s outlooks should always be taken with a big dollop of salt, as Jeremy Warner pointed out in The Daily Telegraph. It failed to anticipate the global crisis and fretted in 2013 that Britain’s austerity programme would choke off growth – just as the recovery began. They have consistently been too optimistic since the crisis, added Larry Elliott in The Guardian. Every year they have said the global economy “is about to move up a gear, and every year they are disappointed”.
For now, however, the backdrop is certainly deteriorating, said Warner. China may be heading for a hard landing; “the eurozone is still a hopeless wreck”, and America appears to be coming off the boil, postponing the first interest-rate hike in nearly a decade. Global headwinds could knock Chancellor George Osborne’s growth and fiscal projections off course again. We can’t permanently shrug off the poor external environment, “unsustainably pumping up demand with monetary stimulus” to make up for “the lack of it elsewhere”.
Yet the UK isn’t merely relying on cheap money, said Capital Economics. There is plenty of organic momentum. Consumers’ real incomes are rising strongly, with inflation at zero and wage growth at almost 3% on an annual basis – the fastest rise in six years. Consumer confidence is at levels consistent with annual growth in retail sales volumes of around 6%. Household spending comprises around 60% of GDP.
Business confidence is healthy and productivity at long last seems to have started to recover. Industrial production was strong last month. The pace of growth may ease in the third quarter, but “we are still feeling pretty good about the outlook”. There are certainly “no obvious reasons why the economy should be seeing a sustained slowdown”.