IMF fears government cuts will damage growth


8:10 am - October 1st 2010

by Newswire    


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Slashing government spending to reduce debt burdens will have unusually damaging effects on growth because of the weak global economy, according to International Monetary Fund research.

Excerpts from the IMF’s twice-yearly economic outlook, which will be published in full just before next week’s annual IMF-World Bank meetings, argue that some studies have underestimated the contractionary effects of rapid cuts in government spending.

The IMF takes aim at the conclusion in these studies that fiscal consolidation can boost economic growth.

The impact of austerity measures are cushioned by a weakening currency, strong export demand and cuts in interest rates – factors absent in most big advanced economies.

“We should not kid ourselves. In the short term, tax hikes and spending cuts will reduce growth and raise the unemployment rate,” said David Leigh, the IMF economist who led the study.

…more at the Financial Times

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Reader comments


1. Luis Enrique

if anybody is interested, chapter 3 of IMF economic outlook: Will it hurt? Macroeconomic Effects of Fiscal Consolidation

Anybody interested might also wish to read the IMF headlines:

Most advanced economies will have to make difficult budget cuts (wow!)
Results tend to be painful in the short term (you don’t say?)
In the long term, reducing government debt is beneficial (indeedy!)

http://www.imf.org/external/pubs/ft/survey/so/2010/RES093010A.htm

“tax hikes and spending cuts will reduce growth and raise the unemployment rate,”

Well, tax hikes certainly will.

Spending cuts probably will too, because governments are cutting all their capital budgets. The best thing government can do these days for growth is to act as an enabler. Build offices, build infrastructure etc, then let new companies come in and create the jobs and growth we need.

As ever, and it cannot be said too much, the reason we’re in this predicament is because of that deficit spending BEFORE the crash.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    IMF fears government cuts will damage growth http://bit.ly/9HVHx3

  2. Max

    RT @libcon: IMF fears government cuts will damage growth http://bit.ly/9HVHx3

  3. Ellie Mae

    RT @libcon: IMF fears government cuts will damage growth http://bit.ly/9HVHx3

  4. Dave Howard

    RT @libcon: IMF fears government cuts will damage growth http://bit.ly/9HVHx3

  5. Laith Gibani

    RT @libcon: IMF fears government cuts will damage growth http://bit.ly/9HVHx3

  6. Jamie Khan

    RT @libcon: IMF fears government cuts will damage growth http://bit.ly/9HVHx3

  7. Melissa Nicole Harry

    RT @libcon: IMF fears government cuts will damage growth http://bit.ly/9HVHx3

  8. Pucci Dellanno

    RT @libcon: IMF fears government cuts will damage growth http://bit.ly/9HVHx3

  9. Mili

    Appear to have ended up in alternative universe. IMF comes out against cuts: http://tinyurl.com/2u4bdra *checks for zeppelins*

  10. The Third Estate

    Umm, the IMF also warned that cuts could damage growth: http://bit.ly/cgNSnM





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