People are rightly suspicious of Treasury growth forecasts. For political reasons, under every Government they seem to overstate growth and understate downturns.
That’s why the independent third parties of global economics – the OECD, the IMF and so on – have become so prized at Westminster. After all, they don’t work directly for Government ministers, so they have less of a stake in massaging their findings.
That’s why there will be much celebration on the Government benches at the news that the latest IMF economic forecast finds, to quote The Times, that:
‘Britain’s economy is bouncing back faster than any major trading nation, according to the International Monetary Fund (IMF).
The Washington-based lender of last resort today lifted its 2014 growth forecast for the UK to 2.4 per cent, from its previous estimate of 1.9 per cent, making it the largest upgrade of any G7 economy. The IMF also pushed up its forecast for 2015 from 2 per cent to 2.2 per cent.’
It’s good news. Here we have yet more proof that Ed Balls was wrong – he predicted disaster under austerity, warning that the Coalition’s fiscal policies were “playing with fire”.
For those reasons, this is good political news for George Osborne. The headlines are great, and will add credence to the argument that the Coalition is getting the job done. It will also boost economic confidence, one of the two main reasons for the positive outlook according to the IMF, hopefully producing more growth as a result.
There is some sense in not gettingtoo cock-a-hoop about the forecasts, though. One of the reasons IMF statistics are so powerful is that Ed Balls gave them credibility when they were pessimistic.
As Matt Hancock put it:
In April last year no less than 5 IMF related tweets from @edballsmp – expect to see at least that many today welcoming the good news…
— Matt Hancock (@matthancockmp) January 21, 2014
But that very fact should give us caution about their accuracy. The anti-austerity “playing with fire” line which Balls gleefully quoted last April came from the IMF’s Chief Economist.
If the IMF was as wrong as Ed Balls last Spring, are its numbers really that reliable now? Or are we at risk of apeing Labour’s approach of embracing the Fund just because it confirms our hopes and prejudices?
The depressing fact is that while the Treasury figures may be somewhat skewed by political pressure the real reason they are so reliably wrong is that economists still aren’t very good at predicting how national or global economies will perform. The IMF is no more superhuman or infallible than Whitehall.
Elsewhere in the Times article, the true extent of IMF inaccuracy becomes clear:
‘Since the IMF’s last update in October, the UK recovery has rapidly gathered momentum. Growth last year is now estimated to have been 1.9 per cent. Four months ago, the IMF was predicting 1.4 per cent growth for 2013 and in April just 0.7 per cent.’
We’d do better to boast – justifiably – of those findings for what has happened than to crow too loudly about predictions which have such a dubious track record.
The undeniable, unchangeable story of the last year is one of higher than expected growth which is accelerating swiftly. That’s no bad thing.