Nadhim Zahawi is the Member of Parliament for Stratford-upon-Avon.
The IMF’s World Economic Update, released yesterday, makes sober reading for the world economy, stating that “The Global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere”. The organisation has downgraded global growth forecasts by three quarters of a percentage point and even downgraded growth in developing and emerging economies. Particularly badly hit is the Eurozone with Germany's growth put at 0.3%, France’s at 0.2 and Italy and Spain both in negative territory at -2.2% and -1.7%.
The IMF is entirely clear about the cause, specifically that “growth in most other advanced economies is also lower, mainly due to adverse spillovers from the Euro area”. So any claim that the report is blaming poor domestic demand, or too tight an austerity programme in the UK is entirely untrue. If anything, the IMF highlights the dangers of failing to deal with a deficit, pointing to Japan and the USA when they say “Another downside risk arises from insufficient progress in developing medium-term fiscal consolidation plans in the United States and Japan”, continuing “As long as public debt levels are projected to rise over the medium term, and in the absence of well defined and credible fiscal consolidation strategies, there is the possibility of turmoil in global bond and currency markets.”
Ed Balls has of course been quick to jump on the one line that supports the position of Kensyians such as himself and bodies such as the NIESR, claiming that “…they [the IMF] have called on countries with low interest rates, like the UK, to reconsider the speed of their spending cuts and tax rises.” What they actually said though was that “Countries should let automatic stabilisers operate freely for as long as they can readily finance higher deficits. Among those countries, those with very low interest rates, or other factors that create adequate fiscal space, should reconsider the pace of near term fiscal consolidation.”
When speaking about the UK specifically, they point out that the government is already taking action and make no call for opening the spending taps as Ed Balls claims, stating that “To prevent a further slowdown of the economy, the government has indicated [In the Autumn Statement] that it will accommodate the weakened cyclically adjusted balance and let automatic stabilisers operate freely over the next three years.” In fact Jörg Decressin, a senior adviser at the IMF went further on Jeff Randall last night when he said "You need a firm medium-term fiscal plan, and that is what the UK has in place" and that "We believe that [UK] fiscal policy is actually on the right track".
For Ed Balls to claim that we are going too far and too fast, compared to Labour’s own plans (which would have cut four of every five pounds we are cutting) and should instead be borrowing vast mountains of money to spend more is simply ridiculous and not backed up by the IMF, especially as they are clear that “Implementation of credible medium-term debt reduction plans remains a priority, as high debt levels make these countries vulnerable should interest rates increase.”
There is no doubt that abandoning our credible plan, which will get the deficit under control now and deal with debt in the medium term, would spook the markets and increase interest rates. With the previous government having left us with some of the highest public and consumer debt levels in the world this would be far from a good thing.