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Prediction of bounceback in growth for 2010 'may be too optimistic'
ECONOMIST'S VIEW FEARS were raised last night that the Government's £20bn spending spree will run out just as the economy starts to recover in 2010.
Leading economists believe the Government is being too optimistic when it says the economy should bounce back in 2010 with positive growth of between 1.5 and 2 per cent.
Tom Vosa, chief economist at Yorkshire Bank, said the Government risks loading all its spending into 2009.
"The Government is bringing forward 3bn in capital spending to this year and next and the VAT cut will end when we start 2010," he said. "It means spending will be cut off just when the economy starts to recover."
He added that the Government was clearly aiming for a short recovery, but this looked far too optimistic.
"There's nothing in here going into 2010, we'd question whether the recovery will be as strong as the Chancellor believes," he said.
In reaction to the VAT reduction, he said the major worry was that annual inflation would fall to zero in the middle of next year followed by inflation hitting minus 1 per cent in 2010.
"This leads to the worry that people will think prices are always going to fall," said Mr Vosa.
"If that happens people postpone spending and the cycle will continue, as has happened in Japan." His sentiments were echoed by Howard Archer, chief economist at IHS Global Insight.
"We suspect that the bounce- back in growth that the Chancellor has pencilled in is too early and too optimistic," said Mr Archer. "The fact that the economy may well recover later and more slowly than the Chancellor expects means that there are considerable downside risks to the already eye-wateringly near-term large fiscal deficits that he has projected.
"Seeing a projected Public Sector Borrowing Requirement of 118bn in 2009/10 is alarming, particularly when there are suspicions that this is based on too optimistic a recovery profile."
Speaking about the Yorkshire economy, Mr Vosa said that small and medium sized business should benefit from a raft of measures, but said this was reversing the harm done in previous budgets.
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Saturday 26 May 2012
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