The most important paragraph in the IMF World Economic Outlook

68 words of wonkishness.

The IMF's World Economic Outlook (pdf) – a 230-page tome detailing predictions on nearly every aspect of the world's economy collated by the international organisation – always gets attention for the calls it makes.

The October edition downgrades expected global growth for 2013 from 3.9 per cent to 3.6 per cent, and also cuts predictions for China (down to 8.2 per cent for 2013), the US (expected to grow by 2.1 per cent in 2013, down from 2.3 per cent in July's prediction) and the UK (now expected to grow by just 1.1 per cent next year, and to contract by 0.2 per cent this year).

But the predictions are not the most important passages in this edition of the Outlook. Those are found in a short box-out titled Are We Underestimating Short-Term Fiscal Multipliers?

The fisc§al multiplier is the effect government spending has on GDP. Money spent by the government doesn't disappear – it is respent, again and again. If a teacher gets a pay rise, their consumption is likely to rise in line with it; if all teachers get pay rises, that increase in consumption may be enough to affect the aggregate demand in the economy. In an economy which isn't being stretched to its limits – that is, one without full employment, or serious capital equipment shortages – that increase in aggregate demand will result in an increase in GDP.

The existence of the fiscal multiplier is a matter of fact, but the magnitude of it is contested. And that's where the IMF enters the scene, on page 42:

The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.

Emphasis mine. When deciding how much to spend, governments have been assuming that every pound they spend increases GDP by 50p – but it may increase it by as much as £1.70.

The reason this is so very important is that fiscal multiplier is usually appealed to not when deciding how much to spend, but how much to not spend. When governments are planning austerity packages, they have to be wary of the fact that large cuts to government spending will inevitably cause a decrease in output, and so they either have to be prepared to take that hit, or come up with a reason why slashing spending will cause an increase in output through some other mechanism.

That is easy enough to do if you are trying to account for a fiscal multiplier of 0.5: you can make the arguments, which Osborne and Cameron rehearsed repeatedly, that the public sector is crowding out the private; that the government spending which is being cut is particularly inefficient; or that the confidence fairies will reward your thriftiness with growth.

When there is the chance that the fiscal multiplier is three times that, austerity becomes much more likely to involve damaging drops in output.

There was once a time when the government pegged its credibility to that of the IMF – back when George Osborne was proud about Britain's credit ratings, and the international community was behind his plans. Those days are gone, and have been since Christine Lagarde made her own attack on austerity. But the economists at the treasury may be more inclined to listen to the wonkish findings of the World Outlook than the political interventions of the fund's leader. We can only hope they are prompted to re-do the sums.

The IMF headquarters. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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How to end the Gulf stand off? The West should tell Qatar to reform its foreign policy

Former defence secretary Geoff Hoon on the unfolding crisis in the Gulf. 

Only one group stands to benefit from a continuation of the crisis in Gulf: The Quartet, as they are now being called. Last week, The United Arab Emirates foreign minister tweeted that Qatar and its Gulf Cooperation Council neighbours are heading for a "long estrangement". We should take him at his word.

The European political establishment has been quick to dismiss the boycott by Saudi Arabia, the UAE, Bahrain and Egypt as naïve, and a strategic mistake. The received wisdom now is that they have acted impulsively, and that any payoff will be inescapably pyrrhic. I’m not so sure.

Another view: Qatar is determined to stand up to its Gulf neighbours

Jean-Yves Le Drian, France's foreign minister, was in the region over the weekend to see if he could relay some of his boss’s diplomatic momentum. He has offered to help mediate with Kuwait, clearly in the belief that this is the perfect opportunity to elevate France back to the top table. But if President Emmanuel Macron thinks this one will be as straightforward as a Donald Trump handshake, he should know that European charm doesn’t function as well in the 45 degree desert heat (even if some people call him the Sun King).

Western mediation has so far proceeded on the assumption that both sides privately know they will suffer if this conflict drags on. The US secretary of state Rex Tillerson judged that a Qatari commitment to further counter-terrorism measures might provide sufficient justification for a noble reversal. But he perhaps underestimates the seriousness of the challenge being made to Qatar. This is not some poorly-judged attempt to steal a quick diplomatic win over an inferior neighbour.

Qatar’s foreign policy is of direct and existential concern to the other governments in the Gulf. They will not let Qatar off the hook. And even more than that, why should they? Qatar has enormous diplomatic and commercial clout for its size, but that would evaporate in an instant if companies and governments were forced to choose between Doha and the Quartet, whose combined GDP is almost ten times that of their former ally. Iran, Turkey and Russia might stay on side. But Qatar would lose the US and Europe, where most of its soft power has been developed. Qatar’s success has been dependent on its ability to play both sides. If it loses that privilege, as it would in the event of an interminable cold war in the Gulf, then the curtains could come down.

Which is why, if they wanted to badly enough, Le Drian and Tillerson could end this conflict tomorrow. Qatar’s foreign policy has been concerning for the past decade. It has backed virtually every losing side in the Arab world, and caused a significant amount of destruction in the process. In Syria, Libya, Egypt and Yemen, Qatar has turned a blind eye to the funding of Islamic revolutionaries with the financial muscle to topple incumbent regimes. Its motives are clear; influence over the emergent republics, as it had in Egypt for a year under Mohamed Morsi. But as we review the success of this policy from the perspective of 2017, it seems clear that all that has been achieved is a combination of civil unrest and civil war. The experiment has failed.

Moreover, the Coalition is not going to lift sanctions until Doha suspends its support for the Muslim Brotherhood. When Western leaders survey the Gulf and consider who they should support, they observe two things: firstly, that the foreign policy of the Quartet is much more aligned with their own (it doesn’t seem likely to me that any European or American company would prefer to see a revolution in Dubai instead of a continuation of the present arrangement), and secondly, that Qatar would fold immediately if they applied any significant pressure. The Al Thani ruling family has bet its fortune and power on trans-Atlantic support; it is simply not credible that they would turn to the West’s enemies in the event that an ultimatum was issued. Doha might even welcome an excuse to pause its costly and ineffective programmes. Even if that involves some short term embarrassment. It is hardly going to lose support at home, with the highest GDP per capita in the world.

It would be necessary to make sure that the Coalition understands that it will have to pay a price for decisive Western intervention. The world will be a more dangerous place if our allies get the impression they can freely bully any smaller rival, knowing that the West will always come down on their side. That is however no great hurdle to action; it might even be a positive thing if we can at the same time negotiate greater contributions to counter-terrorism or refugee funding.

Unfortunately the reason why none of this is likely to happen is partly that the West has lost a lot of confidence in its ability to resolve issues in the Middle East since 2003, and partly because it fears for its interests in Doha and the handsome Qatari contributions in Western capitals. This cautious assessment is wrong and will be more harmful to Qatar and the aforementioned interests. The Quartet has no incentive to relent, it can’t afford to and will profit from commercial uncertainty in Doha the longer this drags on. If the West really wants this to end now, it must tell Qatar to reform its foreign policy or face sanctions from a more threatening ally.

Geoffrey Hoon was the UK defence secretary from 1999 to 2005.