There are some parts of the IMF forecast that I think may well prove to be right. They anticipate global growth at around 3.1% this year and 3.4% next year. They think India and China will continue to grow much faster than the advanced countries. They think that over the medium term the UK will grow 0.5% per annum faster than the Euro area. The UK has been growing faster since 2010 than the Euro area, and on current policies I agree that is likely to continue. They also think the UK will be the fastest growing of the major economies this year – quite a contrast to others.
Where I disagree is with their 2016 and 2017 forecasts for the UK. They seem to have been too influenced by the early adverse July manufacturing PMI survey which they cite , where leading executives of large companies expressed their frustration at losing the referendum. They have a 2016 forecast of 1.8%. Given the robust retail sales, service sector output, car sales and new homes sales figures we have seen since June 24th it is difficult to see why it is below the Treasury March forecast of 2%. However, their forecast is somewhere near that Treasury forecast, and is way more optimistic than all those forecasting an early recession following the vote. My disagreement with it is minor. It’s all a big change of tune from the many gloom mongers this summer saying the UK economy would tank immediately after the vote.
They have instead marked down 2017 more, to just 1.1%. They draw attention to how “the aftermath of the Brexit vote weighs on firms investment and hiring decisions and consumers purchases of durable goods and housing”. So far employment has gone up, new home buying has increased, and car sales and output hit high levels in August with robust growth. If in the immediate shadow of the vote confidence remains high, why should it crumble next year when the anger and upset of those who wanted to remain will have calmed a bit more? They do not mention the large monetary stimulus that has been administered by a lower pound, a cut in interest rates, and a large money creation programme from the Bank of England.
At least they are not forecasting recession any more for the UK. Could the UK economy get hurt? Yes, if a crisis somewhere else in the world blew up. I suspect the IMF is right in thinking we can avoid a major banking crash anywhere for the time being, that China will continue to grow, and worldwide authorities will want to assist expansion. On this basis there should not be a recession in the UK this year or next.
Meanwhile the news media highlights a small fall in the pound this week, but ignores the fact that the FTSE 250 and the smaller companies indices have recently hit new highs. We are told that the FTSE 100 has gone up thanks to overseas earnings. Why have they lost interest in the FTSE 250 which they told us after the vote was the one that mattered? Is it because it too has embarrassed them by going up and hitting a new high? That’s not owing to overseas earnings! Yesterday was strong dollar day. The dollar rose against sterling, the yen and the Euro. Sterling rose against the yen, but our media suppressed that fact as it blows their Brexit thesis about the fall in the pound out of the water.