“These forecasts… suggest our economy will continue to flatline, or worse, well into next year and that unemployment will rise even higher. And with our recovery choked off over twelve months ago, they show that the UK will grow more slowly than the eurozone or the USA this year.”
Ed Balls, November 28 2011
The Organisation for Economic Co-operation and Development’s (OECD) respected economists appeared to provide the shadow chancellor with ammunition this week as he continued to attack the government’s austerity plans.
Mr Balls understandably seized on the worst news that emerged from the think tank’s latest forecasts on the world’s biggest economies: the prediction that the economy will see negative growth in the last quarter of this year and the first quarter of next year.
Bad news, clearly, but is that enough to justify a strident press release from Mr Balls lambasting “David Cameron and George Osborne’s failed plan”?
According to the OECD, the outlook for the UK economy certainly isn’t bright, but let’s put things in perspective.
The researchers do believe there will be two consecutive quarters of negative growth in late 2011 and early 2012, meeting the definition of a double-dip recession.
Then growth is expected to pick up, and there should be signs of recovery by the end of next year.
So when Mr Balls says “the UK will grow more slowly than the eurozone or the USA this year”, he’s absolutely right, but with only one month left of 2011, many of us will be more interested in looking to the future.
Here are the OECD’s latest predictions for year-on-year growth to 2013:
It’s clear that the think tank expects the UK economy to outperform the eurozone as a whole over the next two years.
As we can see, growth in Britain is forecast to rise at almost identical levels to Europe’s biggest economy, Germany, in 2012 and 2013, and our comeback is expected to outpace that of France, the second biggest economy in the zone.
Growth in the US is expected to remain higher throughout the next two years, although the pace of the bounceback will be slower than in the UK, with America’s GDP rising by half a percentage point from 2012 to 2013, compared to 1.3 percentage points in Britain.
As for unemployment, the OECD predicts that joblessness in Britain could hit 9 per cent in 2013. A sobering thought, but again, to put that in context, that’s still slightly less than in the eurozone and almost identical to the US figures.
We’re going to give Mr Balls a Fact rating because his remarks on growth in Britain, the US and the eurozone are technically accurate.
But they only tell half the story. The shadow chancellor is concentrating on the bad news and ignoring the fact that the OECD sees Britain entering a fairly strong period of growth around a year from now.
The bad news for Mr Balls is that the respected think tank specifically praises coalition policy on cutting the deficit and keeping borrowing rates low in helping to create the right conditions for that recovery.
The researchers conclude: “The ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields, leaving room for automatic stabilisers to work fully to cushion the slowdown.”
The OECD also calls the government’s plan to eliminate Britain’s structural deficit in five years “appropriate to regain fiscal sustainability”.
With Labour under increasing pressure to explain how they will fund their five-point plan for an alternative economic strategy based on stimulus measures (see our FactCheck here), Mr Balls might want to rethink any plans he has to rely on the OECD to help him out at the dispatch box this week.
By Patrick Worrall