IMF warns on government spending

IMF May10.pngThe global economy and the chemical industry have been boosted, since the Crisis began in 2008, by massive government stimulus programmes in areas such as autos and housing. Now the International Monetary Fund (IMF) has released a new report, focusing on what happens next.

It warns that “general government debt is expected to rise by 36% in developed countries between 2007-14“. And it notes that their costs for health and pension expenditure will rise by 4-5% of GDP by 2030, due to the aging population. It adds that most emerging economies also face the need for significant cut-backs, although their outlook is more favourable.

The IMF chart above shows the relative position of some major countries:

• The horizontal axis shows average GDP % “adjustments” ie cuts needed
• The vertical axis shows the additional costs of age-related expenditure

Top-right countries the USA, UK, Spain, Netherlands, Australia, are in worst position overall. Top-left Germany, Russia, Turkey, face lower cuts but high age-related costs. Bottom right Japan faces the most cuts, and its age-related spending rises by 3% of GDP. Even bottom left China and Italy need 4% cuts. Bulgaria and Indonesia are best-placed overall.

The IMF suggests governments might need to “freeze spending in real per capita terms for the next 10 years“, whilst also introducing “bold reforms” to reduce age-related spending, as well as ending their stimulus spending.

This is further support for the argument that we face a ‘New Normal’ of lower growth rates and de-leveraging in coming years, rather than a quick return to the Boom years before the Crisis.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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