It is perhaps a measure of how low expectations have been set that today's IMF report is being welcomed by many of the government's supporters as "good news".
The Fund notes that GDP per capita is some six per cent below its pre-recession level, that this is the weakest recovery in modern economic history, that capital spending as a share of GDP is at a post-war low and that the risks "remain tilted to the downside". In most circumstances this would be taken as a pretty damning indictment of the state of the economy and our prospects for recovery. However, because the IMF has stopped short of openly calling for a "plan B" the Chancellor's allies appear to be classifying this as a victory.
In reality it would always have been very difficult for the IMF to openly call on the UK to change course, but within the limits of diplomatic language it came as close as it could to doing this. The Fund states that "fiscal tightening" has been a drag on growth and argues that capital spending plans should be brought forward. As the IMF argues, this "would help catalyze private investment and spur much-needed growth."
In other words the IMF has spent several weeks examining the economy and has basically decided that the recovery is extremely weak and the most straight forward way to speed up it would be via more government capital spending. It is hard to argue with this conclusion.
Speaking at the TUC last night, former US Labor Secretary Robert Reich made much the same argument, arguing that boosting public investment spending is the surest route to a faster recovery.
Research from the National Institute for Economic and Social Research (NIESR) published by the TUC two weeks ago modelled the impact of a £30billion (two per cent of GDP) infrastructure focused capital spending plan, funded by additional borrowing. It found that in "crisis times" (when the economy is depressed) such spending would boost growth in both the short run and the long run and reduce unemployment. But crucially the research also showed that whilst such spending would increase the deficit in the short run it would lead to a lower government debt to GDP ratio in the medium as the stimulus package boosted growth.
This is about as close to a "free lunch" as any government will ever be offered - more growth, lower unemployment and ultimately self-financing. No wonder the IMF is urging the UK to bring forward capital spending plans.
Our transport, communications and energy infrastructure is in desperate need of modernisation, not to mention the need for new homes and schools. But rather than take advantage of low borrowing costs, the government is sitting on its hands and waiting for private sector funding that isn't coming its way.
When the case for more capital spending unites organisations as disparate as the TUC and the IMF, the Chancellor really should start listening.