Introduction: IMF forecasts UK recession this year
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
Growth, or the lack of it, is the main issue today after the International Monetary Fund released its latest economic forecasts overnight … and as we await eurozone GDP figures this morning.
The IMF’s message for Britain was grim – the UK is the only advanced economy expected to fall into recession this year.
UK GDP is forecast to shrink by 0.6% this year, the worst forecast for any G7 country this year, which is a 0.9 percentage point downward revision from October’s forecasts.
The IMF blamed the downgrade on tighter government spending policies and higher interest rates (which may be raised again on Thursday), and the burden from still-high energy retail prices on household budgets.
Pierre-Olivier Gourinchas, the IMF’s economic counsellor, said 2023 would be “quite challenging” for the UK as it slipped from top to bottom of the G7 league table.
He added:
“There is a sharp correction.”
The move piles more pressure on UK chancellor Jeremy Hunt, who’s facing calls from business groups for a more ambitious growth strategy, and demands from some Conservative MPs for tax cuts.
This contraction would follow 4.1% growth in 2022, the IMF says, one of the fastest growth rates among advanced economies last year.
The broader economic picture has brightened a little, though, the IMF says, citing “signs of resilience and China reopening”.
The IMF has lifted its forecast for the world economy this year: global growth will slow from 3.4% in 2022 to 2.9% in 2023 – an upgrade on its previous forecast of 2.7%.
The IMF’s Gourinchas says China’s sudden reopening paves the way for a rapid rebound in activity.
Gourinchas writes:
The global economy is poised to slow this year, before rebounding next year. Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity.
Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining.
Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe. Inflation, too, showed improvement, with overall measures now decreasing in most countries – even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.
Also coming up….
We find out today how the French, Portuguese, Italian and the wider eurozone economy fared in the final quarter of last year.
Yesterday we learned that Germany’s GDP shrank unexpectedly in Q4, by 0.2%, putting Europe’s largest economy at risk of a winter recession.
The agenda
-
6.30am GMT: French Q4 2022 GDP report
-
8.55am GMT: German unemployment report for January
-
9.30am GMT: Portugal’s Q4 2022 GDP report
-
9.30am GMT: UK mortgage approvals and consumer credit data for December
-
10am GMT: Italy’s Q4 2022 GDP report
-
10am GMT: Eurozone Q4 2022 GDP report
-
1.30pm GMT: Canadian December and Q4 2022 GDP report
-
2pm GMT: US house price index
Key events
Filters BETA
Despite downgrading its UK growth forecast this year, the IMF did say last autumn that it thinks the UK economy is now “on the right track”, points out Victoria Scholar, head of investment at interactive investor:
“The International Monetary Fund (IMF) has predicted that the UK will be the only major economy out of the 15 in the report including sanction-rocked Russia to shrink in 2023. The fund expects the UK economy to contract by 0.6% this year, downgraded from growth of 0.3% in its previous forecasts. The British economy is expected to contract on the back of high energy prices, tax increases and rising interest rates.
However the IMF said the Treasury appears to be on the right track after the Autumn Statement and the fund upgraded the UK’s growth outlook for next year from 0.6% to 0.9%. Interestingly, the IMF did not mention Brexit as a reason because of the UK’s underperformance.
The UK’s latest GDP figures saw the UK economy grow in November by 0.1% versus expectations for a contraction, Scholar points out:
It hangs in the balance whether the UK will narrowly stave off a recession or not. At the start of the year, Prime Minister Rishi Sunak pledged to halve inflation and grow the economy. While inflation is already showing signs of easing, the IMF’s forecast indicates the latter pledge may be more difficult to achieve.
The IMF showed its support for the government’s fiscal prudence in the Autumn Statement in stark contrast to the fiscal fiasco around the mini-budget in September. This suggests that the Treasury is unlikely to pull any rabbits out of the hat at the Spring Budget on 15th March with Chancellor Jeremy Hunt expected to stick to tax increases rather than cuts as taming inflation remains an ongoing priority.”
IMF downgrades UK forecasts: what the media says
There’s plenty of media reaction to the IMF’s prediction that Britain’s economy will shrink this year as the cost-of-living crisis hits households hard, leaving the UK with the worst performance of all the advanced nations.
The Financial Times points out that even Russia – hit by sanctions following the Ukraine war – is expected to grow this year. They say:
The fund upgraded its forecasts for most leading economies and said the global outlook had brightened.
But it identified the UK as an exception and said the British economy would shrink by 0.5 per cent between the final quarter of 2022 and the final quarter of this year. Even Russia’s economy is now likely to outpace the UK’s, growing 1 per cent this year, according to the IMF forecasts.
Bloomberg points out that higher interest rates and tighter fiscal policy (government tax and spending policy) are blamed for slump:
Britain faces the bleakest two years of any major industrial nation with a recession in 2023 and the slowest growth of peers in 2024, the International Monetary Fund predicts.
The UK will be the only Group of Seven member whose economy will shrink this year, with a contraction of 0.6%, the IMF said. The Washington-based institution downgraded its outlook by a massive 0.9 percentage point from October, saying higher interest rates and taxes along with government spending restraint will exacerbate a cost-of-living crisis.
The Daily Mail says Britain has been hit with a “devastating forecast”, which adds to the pressure on Jeremy Hunt to produce a convincing plan for recovery.
While the Daily Telegraph points out that business leaders including Marks & Spencer chairman Archie Norman and Sir James Dyson have already been critical of the Government’s economic approach, adding:
The Prime Minister and the Chancellor are however resisting calls to cut taxes in the upcoming budget, with Mr Hunt insisting on Friday that inflation needed to come down first.
And in the Guardian, my colleague Larry Elliott writes:
The UK chancellor, Jeremy Hunt, last week warned a sense of declinism was hampering the UK’s economic recovery, and has come under pressure to come up with a credible plan to boost growth.
His speech, which focused on “enterprise, education, employment and everywhere”, was widely criticised by business leaders as being devoid of policies.
You can read the International Monetary Fund’s latest World Economic Outlook here.
French economy grew 0.1% in Q4 2022
Just in: France’s economy slowed at the end of last year, but did better than economists predicted.
The French economy eked out growth of 0.1% in the fourth quarter of 2022, according to preliminary gross domestic product (GDP) figures just released.
That’s a slowdown compared to economic growth of 0.2% in the third quarter, but does beat forecasts – economists expected France to stagnate in Q4.
It also beats Germany, which shrank by 0.2% in Q4. We don’t yet know how the UK economy fared in the October-December quarter.
Rachel Reeves MP, Labour’s Shadow Chancellor, says the IMF’s forecasts show Britain needs a proper plan for growth:
“Britain has huge potential – but too many signs are pointing towards really difficult times for our economy, leaving us lagging behind our peers.
“The government should be doing all it can to make our economy stronger and to get it growing.
“It is the only way that we can move beyond lurching from crisis to crisis as we have been for far too long.
“Labour has a proper plan for growth that will get our economy back on track. Our Green Prosperity Plan and our active partnership with business will get our economy growing so we can get out of this spiral and onto a better path.”
Hunt: UK not immune to pressures on advanced economies
Chancellor Jeremy Hunt has responded to the IMF report, saying nearly all advanced economies were facing headwinds.
Hunt declared:
“The Governor of the Bank of England recently said that any UK recession this year is likely to be shallower than previously predicted, however these figures confirm we are not immune to the pressures hitting nearly all advanced economies.
“Short-term challenges should not obscure our long-term prospects.”
[the IMF’s message, though, is that the UK is an exception to the brightening global prospects this year]
Introduction: IMF forecasts UK recession this year
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
Growth, or the lack of it, is the main issue today after the International Monetary Fund released its latest economic forecasts overnight … and as we await eurozone GDP figures this morning.
The IMF’s message for Britain was grim – the UK is the only advanced economy expected to fall into recession this year.
UK GDP is forecast to shrink by 0.6% this year, the worst forecast for any G7 country this year, which is a 0.9 percentage point downward revision from October’s forecasts.
The IMF blamed the downgrade on tighter government spending policies and higher interest rates (which may be raised again on Thursday), and the burden from still-high energy retail prices on household budgets.
Pierre-Olivier Gourinchas, the IMF’s economic counsellor, said 2023 would be “quite challenging” for the UK as it slipped from top to bottom of the G7 league table.
He added:
“There is a sharp correction.”
The move piles more pressure on UK chancellor Jeremy Hunt, who’s facing calls from business groups for a more ambitious growth strategy, and demands from some Conservative MPs for tax cuts.
This contraction would follow 4.1% growth in 2022, the IMF says, one of the fastest growth rates among advanced economies last year.
The broader economic picture has brightened a little, though, the IMF says, citing “signs of resilience and China reopening”.
The IMF has lifted its forecast for the world economy this year: global growth will slow from 3.4% in 2022 to 2.9% in 2023 – an upgrade on its previous forecast of 2.7%.
The IMF’s Gourinchas says China’s sudden reopening paves the way for a rapid rebound in activity.
Gourinchas writes:
The global economy is poised to slow this year, before rebounding next year. Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity.
Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining.
Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe. Inflation, too, showed improvement, with overall measures now decreasing in most countries – even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.
Also coming up….
We find out today how the French, Portuguese, Italian and the wider eurozone economy fared in the final quarter of last year.
Yesterday we learned that Germany’s GDP shrank unexpectedly in Q4, by 0.2%, putting Europe’s largest economy at risk of a winter recession.
The agenda
-
6.30am GMT: French Q4 2022 GDP report
-
8.55am GMT: German unemployment report for January
-
9.30am GMT: Portugal’s Q4 2022 GDP report
-
9.30am GMT: UK mortgage approvals and consumer credit data for December
-
10am GMT: Italy’s Q4 2022 GDP report
-
10am GMT: Eurozone Q4 2022 GDP report
-
1.30pm GMT: Canadian December and Q4 2022 GDP report
-
2pm GMT: US house price index
