LONDON (Reuters) – Britain’s economy is unlikely to have a quick bounce back as it recovers from its coronavirus shutdown which could have wiped more than 30% off output last month, the head of the country’s budget forecasting office said on Sunday.
Robert Chote, chairman of the Office for Budget Responsibility (OBR), said April was probably the bottom of the crash as the government is now moving to gradually ease its lockdown restrictions.
“We know that the economy, probably at its worst last month, may have been a third or so smaller than it normally would have been, in terms of output of goods and services and people’s spending,” he told BBC television.
“But that should be the worst of it.”
Britain, like many other countries, has shut down much of its economy to slow the spread of COVID-19.
Last month, the OBR said Britain’s gross domestic product could plummet by 13% in 2020, its biggest collapse in more than 300 years.
Chote said a quick, V-shaped recovery included in that report was only meant to be an illustrative scenario to show the hit to the public finances.
“In practice I think you are likely not to see the economy bouncing back to where we would have expected it otherwise to be by the end of the year, on that assumption, but instead a rather slower recovery,” Chote said.
As well as the pace of the lifting of the lockdown, the speed of the recovery would depend on how cautious consumers remained and how companies adjust to changes in the economy such as more demand for online retailing and less for restaurants.
Chote said Britain would not necessarily have to return to severe public spending cuts to cope with the debt surge that will come from its response to the coronavirus crisis.
Key factors include how much permanent damage the economy suffers, the level of interest rates on public debt – which are currently rock-bottom – and how much the country wants to spend on health and other services.
“But a post financial crisis-style, extended period of austerity is not a done deal,” Chote said, adding tax increases were another option.
Prime Minister Boris Johnson has said he will not lead Britain into a new period of austerity after previous Conservative-led governments sought to fix the public finances by cutting spending in many areas of public services.
(Writing by William Schomberg; editing by Michael Holden and Jason Neely)
The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.
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Published Apr 18, 2024 • 2 minute read
(Bloomberg) — The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.
“All eyes are on the US,” Kristalina Georgieva said in an interview on Bloomberg’s Surveillance on Thursday.
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The two biggest issues, she said, are “what is going to happen with inflation and interest rates” and “how is the US going to navigate this world of more intrusive government policies.”
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The sustained strength of the US dollar is “concerning” for other currencies, particularly the lack of clarity on how long that may last.
“That’s what I hear from countries,” said the leader of the fund, which has about 190 members. “How long will the Fed be stuck with higher interest rates?”
Georgieva was speaking on the sidelines of the IMF and World Bank’s spring meetings in Washington, where policymakers have been debating the impacts of Washington and Beijing’s policies and their geopolitical rivalry.
Read More: A Resilient Global Economy Masks Growing Debt and Inequality
Georgieva said the IMF is optimistic that the conditions will be right for the Federal Reserve to start cutting rates this year.
“The Fed is not yet prepared, and rightly so, to cut,” she said. “How fast? I don’t think we should gear up for a rapid decline in interest rates.”
The IMF chief also repeated her concerns about China devoting too much capital and labor toward export-oriented manufacturing, causing other countries, including the US, to retaliate with protectionist policies.
China Overcapacity
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“If China builds overcapacity and pushes exports that create reciprocity of action, then we are in a world of more fragmentation not less, and that ultimately is not good for China,” Georgieva said.
“What I want to see China doing is get serious about reforms, get serious about demand and consumption,” she added.
A number of countries have recently criticized China for what they see as excessive state subsidies for manufacturers, particularly in clean energy sectors, that might flood global markets with cheap goods and threaten competing firms.
US Treasury Secretary Janet Yellen hammered at the theme during a recent trip to China, repeatedly calling on Beijing to shift its economic policy toward stimulating domestic demand.
Chinese officials have acknowledged the risk of overcapacity in some areas, but have largely portrayed the criticism as overblown and hypocritical, coming from countries that are also ramping up clean energy subsidies.
(Updates with additional Georgieva comments from eighth paragraph.)
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Poland has EU’s second highest emissions in relation to size of economy Notes From Poland
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WASHINGTON (AP) — The head of the International Monetary Fund said Thursday that the world economy has proven surprisingly resilient in the face of higher interest rates and the shock of war in Ukraine and Gaza, but “there is plenty to worry about,” including stubborn inflation and rising levels of government debt.
“ Inflation is down but not gone,” Kristalina Georgieva told reporters at the spring meeting of the IMF and its sister organization, the World Bank. In the United States, she said, “the flipside” of unexpectedly strong economic growth is that it ”taking longer than expected” to bring inflation down.
Georgieva also warned that government debts are growing around the world. Last year, they ticked up to 93% of global economic output — up from 84% in 2019 before the response to the COVID-19 pandemic pushed governments to spend more to provide healthcare and economic assistance. She urged countries to more efficiently collect taxes and spend public money. “In a world where the crises keep coming, countries must urgently build fiscal resilience to be prepared for the next shock,” she said.
On Tuesday, the IMF said it expects to the global economy to grow 3.2% this year, a modest upgrade from the forecast it made in January and unchanged from 2023. It also expects a third straight year of 3.2% growth in 2025.
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The world economy has proven unexpectedly sturdy, but it remains weak by historical standards: Global growth averaged 3.8% from 2000 to 2019.
One reason for sluggish global growth, Georgieva said, is disappointing improvement in productivity. She said that countries had not found ways to most efficiently match workers and technology and that years of low interest rates — that only ended after inflation picked up in 2021 — had allowed “firms that were not competitive to stay afloat.”
She also cited in many countries an aging “labor force that doesn’t bring the dynamism” needed for faster economic growth.
The United States has been an exception to the weak productivity gains over the past year. Compared to Europe, Georgieva said, America makes it easier for businesses to bring innovations to the marketplace and has lower energy costs.
She said countries could help their economies by slashing bureaucratic red tape and getting more women into the job market.
Paul Wiseman, The Associated Press
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