IMF economist who thinks Britain can’t afford tax cuts is Brexit critic
French expert has been pessimistic about the UK’S prospects, report Tim Wallace and Eir Nolsøe
Pierre-olivier Gourinchas, chief economist of the International Monetary Fund (IMF), has warned Jeremy Hunt not to implement tax cuts, saying Britain can ill-afford giveaways given creaking public finances.
It is not the first time the Frenchman has offered his twopence on the British economy: Gourinchas was a persistent critic of Brexit. Two days after the Brexit vote in late June 2016 Gourinchas was among 24 leading economists to put their names to a column outlining what they saw as the many ills the decision would bring.
“Britain voted to leave the EU. This is terrible news for the UK, but it is also bad news for the eurozone,” they warned. “Brexit opens the door to all sorts of shocks, and dangerous political snowball effects.”
In another article released nearly a year after the vote, Gourinchas admitted there had been “no immediate economic slowdown” after the referendum. But he and co-author Galina Hale warned the decision would suppress the potential growth rate in coming years and result in a smaller than otherwise economy with a weaker currency. “The agglomeration effects that made London a pre-eminent global financial centre will weaken,” Gourinchas and his colleague wrote.
Some such warnings are no longer seen as controversial – the pound has yet to regain its pre-referendum strength – but many of the most dire pre-referendum forecasts made about Britain’s future outside the EU, including massive job losses in the City, never came to pass.
Pessimism about Britain’s prospects has persisted in IMF forecasts since Gourinchas became chief economist in January 2022.
Only a year ago the IMF said the UK would be the only advanced economy to fall into recession in 2023, shrinking 0.6pc. Gourinchas warned Britain was in for “a sharp correction.” Instead, the UK grew by 0.5pc, according to the IMF’S own estimates this week. This was similar to the eurozone and well ahead of Germany, which shrank by 0.3pc.
Montpellier-raised Gourinchas is very much a member of the global economic establishment. A graduate of MIT, he has held teaching positions at Stanford and Princeton and edited a range of prestigious economic journals. He was named France’s best economist under 40 in 2008 and it is perhaps this accolade that helped him catch the eye of François Hollande. He turned to Gourinchas in 2012 as an adviser when Hollande won the French presidency.
Gourinchas is currently on leave from University of California at Berkeley, where he is a professor, while he works at the IMF. A downbeat stance on Britain is something of a tradition at the fund. Telegraph analysis shows nearly all of the IMF’S forecasts since early 2016 have underestimated the UK’S growth rate. Four fifths of its predictions for UK growth in the same year of the forecast have proved too pessimistic. The IMF’S own analysis of its performance notes that its predictions were not dissimilar to those of British institutions, including the Bank of England and the Office for Budget Responsibility.
A spokesman said: “Our analysis shows that IMF growth forecasts, on average, have not been below those of other forecasters. For instance, during 2012-19, the IMF’S average annual growth forecast error was slightly below that for consensus. This relativity also broadly obtains for the postpandemic period, and with other forecasters.”
Gourinchas is extremely well respected by IMF veterans. Kenneth Rogoff, professor of economics at Harvard University and former chief economist at the IMF, says Gourinchas “has been doing a superb job on the World Economic Outlook (WEO)”.
Olivier Blanchard was chief economist while Gourinchas was editor-in-chief of the IMF Economic
Review.
Now professor of economics at MIT, Blanchard says his successor “is doing a great job”. Gourinchas’ comment this week that he would “advise against further discretionary tax cuts” is supported by his successor.
“In my view, it is completely right to say that given the spending needs that have been identified – defence, health, global warming – tax cuts are not the best idea,” Blanchard says. “The idea that tax cuts lead to much higher growth has been consistently debunked empirically: sometimes it helps a bit, but rarely is the effect noticeable.” Gourinchas is “not an idealogue, but a pragmatist,” he says. “And he is not a politician”.
For MPS in Westminster, that will be little comfort.