I wrote a global outlook piece at the end of last year, where I tipped 2013 to be "the year of the slow grind". Following today's latest set of economic predictions, it seems that the International Monetary Fund (IMF) is coming round to that way of thinking.
The organisation has cut its forecasts for the average growth levels in the world's advanced economies to a meagre 1.2% for 2013 - with the UK, typically, having its growth forecast lowered by the most (0.7% from 1.0% in 2013 and 1.5% from 1.8% in 2014). This latest set of figures will only serve to strain the already fractious relationship between the Chancellor George Osborne and the IMF even further.
The IMF has previously called for Osborne to relax the pace of the government's austerity plan and reiterated their concern that the fiscal plans of the coalition government are still doing more harm to our economy than good. In this latest report they stated that the "recovery is weak owing to lacklustre demand", and that "consideration should be given to greater near-term flexibility in the fiscal adjustment path." It doesn't really get much clearer than that.
Allies of the Chancellor will say that the IMF's latest comments about the Bank of England and its use of monetary policy justify his quest to bring Mark Carney into the position. However, that would be generous in the extreme. Since the appointment of Dr Carney, it has been clear that unless the UK shows signs of a turnaround quickly, then the Bank of England would be cleared to engage in some more aggressive monetary policy to try to boost growth.
Throughout the financial crisis commentators have been quick to draw comparisons between the UK and the Japanese economies and, in particular, the levels of debt compared to GDP. Japan has been through a couple of 'lost decades' since the 1990s - with growth slowing to a crawl and banks kept alive by a government with a mandate to invest in unprofitable, dying companies. This life support system has done nothing for the economy. 30% of Japanese companies have simply turned into 'zombies' - living off hand-outs that only pay off existing debt and nothing more.
To drag itself out of this slow, yet crushing lack of performance the Japanese government and the central bank have come to together to throw a 'revolutionary' series of stimulus measures at the problem, including asset purchases of a similar size to the ones currently being done in the US but in an economy 1/3rd of the size.
It has been clear for a few months now that the Bank of England's 'Funding for Lending Scheme' has not seen and adequate transmission of cheap credit through to the private sector - and that direct purchases of private sector assets, such as corporate debt, could bypass the still sclerotic banking sector.
With this new report from the IMF bringing the issue of UK growth - or lack thereof - back into the spotlight, it's clear that the government and the BOE need to think fast and come up with a new, legitimate plan to get things going. They need to keep the experiences of Japan in mind and be aware of the fact if our recovery doesn't pick-up soon, there is a real chance that this 'year of slow grind' will turn into a 'lost decade'.Suggest a correction