IMF cuts Asian forecasts on European worries

More bad economic news for the World economy comes today as the IMF cuts its growth forecasts for Asia.

It says that an escalation in Europe’s debt crisis may trigger a selloff in Asian assets, force foreign banks to cut lending to the region and disrupt its currency markets.

Consequently it has cut its expansion forecast for this year to 6.3 percent from an April estimate of 6.8 percent.

Our recovery out of recession will be the slowest since 1918 says report

Britain's recovery from recession will be the weakest of any since the
end of the First World War.

That's the findings of the National Institute for Economic and Social Research(NIESR)which have been published this afternoon.

Their monthly estimates of GDP suggest that output grew by 0.5 per cent in the three
months ending in September after growth of 0.4 per cent in the three months ending in August.

UK economic growth over the past year has been anaemic says the report with the level of output only 0.5 per cent higher than this time last year.

Some good news though.The institute say the recession is over, while the
period of depression is likely to continue for some time.

Growing clamour for Osborne to change direction

With the overnight news that America has begun the latest attempts to address the growing crisis in the world economy with the central bank unleashing $400bn to prevent the world's largest economy sliding back into recession,there is much speculation amongst commentators that a U turn in the UK is the right way to move.

Not more so than the Telegraph's Jeremy Warner who writes that the euro crisis gives the Chancellor an opportunity to recast his deficit reduction strategy.

Jeremy writes that

The mistake the government made when selling the austerity programme to voters was to claim that the mere act of reducing the deficit would unleash a private sector revival that would counter the jobs and growth being lost to fiscal consolidation. That was never likely to be the case in circumstances where the private sector is even more indebted than the Government, and therefore vigorously engaged in exactly the same process of paying off debt. If everyone is trying to cut back all at the same time, it is a matter of simple arithmetic that overall demand will suffer.

Meanwhile at the Guardian Seumas Milne writes that only radical action will drag the economy from the brink

The breakdown of the model of capitalism that began in 2007-8 is now entering a new and potentially even more destructive phase, with the threat of another Lehmans-style spasm as European banks loaded with unrepayable sovereign debts fuel a new credit squeeze.

Concluding that

The economy is in flames and the neoliberal model that has brought it to this pass is bust – even as the political class clings stubbornly to the orthodoxies of the boom years. But those who grasp that the crisis is transforming politics will shape its future.

Even the FT believes that it is time to change tact,

If weak demand was the only problem, throwing money at it would be the simple solution. But the UK economy also appears structurally weaker than anyone had hoped.

But it adds that Private sector productivity is lower now than before the financial crisis started and coupled with that the chances of rapid growth are further diminished by rapidly declining output in the banking sector, and in oil and gas extraction.

Yesterday's Public borrowing figures were another kick in the teeth for the government's strategy with borrowing higher than it was a year ago,it rose to £15.9bn last month, compared with £14bn.

That coupled with two separate warnings from the IMF surely now increase the pressure on the government to change tact.

Stiglitz backs Brown

I am just reading the Independent's front page splash with Joseph Stiglitz.former senior advisor to Bill Clinton who wants Gordon Brown to defy economics and continue to reflate.

He says the paper

is appalled that the banks have expressed "not a note of gratitude" about the funding and subsidies they have received from taxpayers "without which they would not exist", and that they have had the cheek to turn around and say that they don't have enough money to lend to small businesses or would-be homeowners, but that they have to spend vast sums of money raised from often hard-up taxpayers on obscene bonuses

But it is advice to Gordon that for me stands out.He thinks that he should ignore any clamour to reduce the budget deficit and recoils at Cameroneconomics

"Because cutting back means the economy goes into a downturn and the markets lose even more confidence, as it will trigger another recession or depression." If we do do that, he says, we will get the dreaded "double dip" recession. He urges ministers instead to tell the opposition and those short-sleeved, short-sighted, short-memoried traders in the City to consider the investment and returns that will come from all the public spending we are doing.

for those who worry about our AAA credit rating

he finds it "unconscionable" that the British Government is now being held to ransom by the very credit ratings agencies – currently murmuring about withdrawing the UK's AAA rating – which fouled up so badly over sub-prime mortgages and all those unfathomable securities that landed us in the mess we're in now. And if the markets won't buy our gilts – the bonds the Treasury issues to cover its vast borrowings (about £175bn this year) – he wants the Bank of England to be "cooperative" and buy them instead.

Quote of the day

From Joseph Stiglitz who predicted the slump years ago.

Stiglitz wants Gordon Brown – who he met for dinner yesterday evening – to hold his nerve, defy the markets and ignore those who want him to start reducing the budget deficit, which is pretty much everyone it would seem.

Interview with the Independent

West is lagging behind in the recovery stakes

Whilst the UK is staggering out of recession,others are doing a lot better it seems.

The International Monetary Fund reports that countries have emerged faster than expected from the global recession, but also warned that managing post-crisis growth is becoming complicated by the divergence in advanced and developing economies.

Its latest forecast out today shows 3.9 percent growth this year and 4.3 percent in 2011.

However the recovery is proceeding at different speeds around the world, with emerging markets, led by Asia relatively vigorous, but advanced economies remaining sluggish and still dependent on government stimulus measures.

Its Managing Director Dominique Strauss-Kahn has warned that countries risk a return to recession if anti-crisis measures are withdrawn too soon.

That may contrast with the thoughts of George Osborne who earlier today said the government do not have a credible plan to reduce the deficit, and that that was “undermining confidence and creating the conditions in which weak recovery continues”.