Tag: Fiscal Consolidation

On 21st April the IMF published its latest World Economic Outlook. It forecasts that the output of the world economy will grow by 4.2% in 2010, following last year’s 0.6% contraction, and by a further 4.3% in 2011. However, the Foreword to the report identifies considerable economic uncertainties. In particular, it identifies ‘fiscal fragilities’ and, hence, a ‘pressing need’ for fiscal consolidation. But, it also points to the need for policies ‘to buttress lasting financial stability’.

The IMF notes that Europe has come out of the recession slower than other parts of the world. For the EU-27 it is predicting growth of 1.0% this year, following a contraction of 4.1% last year, but with growth remaining at 1% in 2011. The UK is forecast to grow by 1.3% this year, following a contraction of 4.9% last year, and by a further 2.5% in 2011. Therefore, economic growth in the UK is forecast to be stronger than that across the European Union in both 2010 and, in particular, in 2011.

If we look at the expected growth in some of the principal components of the UK’s aggregate demand we see signs of a ‘rebalancing’. Firstly, household spending, which contracted by 3.2% last year is expected to rise by 0.2% in 2010 and by 1.4% in 2011. Secondly, general government current expenditure, which grew by 2.2% last year, is forecast to grow by 1.3% this year but, as the expected fiscal consolidation kicks in, will fall by 1% in 2011. Thirdly, gross fixed capital formation (capital expenditures) which fell by some 14.9% in 2009 is forecast to fall this year by a further 2.6%, before growing by 4.7% in 2011.

Report

World Economic Outlook, April 2010 IMF

Articles

IMF Raises 2010 Growth Outlook, Says Government Debt Poses Risk Bloomberg Businessweek, Sandrine Rastello (22/4/10)
GDP figures: what the experts say Guardian (23/4/10)
IMF cuts UK forecast in blow to Gordon Brown The Telegraph, Angela Monaghan (22/4/10)
IMF maintains U.K. 2010 forecast at 1.3 per cent Bloomberg, Svenja O’Donnell (21/4/10)
Global recovery faster than expected, says IMF BBC News (21/4/10) )
IMF nudges up world GDP view; fiscal fears mount Reuters, Lesley Wroughton and Emily Kaiser (21/4/10)

Data

World Economic Outlook Reports IMF
World Economic Outlook Databases IMF
For macroeconomic data for EU countries and other OECD countries, such as the USA, Canada, Japan, Australia and Korea, see:
AMECO online European Commission

Questions

  1. What economic uncertainties do you think might affect the forecasts of economic growth for both the world and UK economies? Would you expect these uncertainties to be less or more significant in the UK?
  2. What do you understand by the term ‘fiscal consolidation’? Why do you think the IMF are highlighting this as a concern?
  3. Why do you think growth across Europe has been lagging behind other parts of the world? What might explain why growth in the UK is expected to be above that across Europe over the next two years?