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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Why Labour's dismal poll ratings won't harm Jeremy Corbyn's re-election chances

Members didn't vote for him on electoral grounds and believe his opponents would fare no better.

On the day of Theresa May's coronation as Conservative leader, a Labour MP texted me: "Can you imagine how big the Tory lead will be?!" We need imagine no more. An ICM poll yesterday gave the Tories a 16-point lead over Labour, their biggest since October 2009, while YouGov put them 12 ahead. The latter showed that 2.7 million people who voted for the opposition in 2015 believe that Theresa May would make a better prime minister than Jeremy Corbyn (she leads among all voters by 52-18).

One might expect these subterranean ratings to reduce Corbyn's chances of victory in the Labour leadership contest. But any effect is likely to be negligible. Corbyn was not elected last summer because members regarded him as best-placed to win a general election (polling showed Andy Burnham ahead on that front) but because his views aligned with theirs on austerity, immigration and foreign policy. Some explicitly stated that they regarded the next election as lost in advance and thought it better to devote themselves to the long-term task of movement building (a sentiment that current polling will only encourage). Their backing for Corbyn was not conditional on improved performance among the public. The surge in party membership from 200,000 last year to 515,000 is far more worthy of note. 

To the extent to which electoral considerations influence their judgement, Corbyn's supporters do not blame the Labour leader for his party's parlous position. He inherited an outfit that had lost two general elections, neither on a hard-left policy platform. From the start, Corbyn has been opposed by the majority of Labour MPs; the latest polls follow 81 per cent voting no confidence in him. It is this disunity, rather than Corbyn's leadership, that many members regard as the cause of the party's malady. Alongside this, data is cherry picked in order to paint a more rosy picture. It was widely claimed yesterday that Labour was polling level with the Tories until the challenge against Corbyn. In reality, the party has trailed by an average of eight points this year, only matching he Conservatives in a sole Survation survey.

But it is Labour's disunity, rather than Corbyn, that most members hold responsible. MPs contend that division is necessary to ensure the selection of a more electable figure. The problem for them is that members believe they would do little, if any, better. A YouGov poll published on 19 July found that just 8 per cent believed Smith was "likely to lead Labour to victory at the next general election", compared to 24 per cent for Corbyn.

The former shadow work and pensions secretary hopes to eradicate this gap as the campaign progresses. He has made the claim that he combines Corbyn's radicalism with superior electability his defining offer. But as Burnham's fate showed, being seen as a winner is no guarantee of success. Despite his insistence to the contrary, many fear that Smith would too willingly trade principle for power. As YouGov's Marcus Roberts told me: "One of the big reasons candidates like Tessa Jowell and Andy Burnham struggled last summer was that they put too much emphasis on winning. When you say 'winning' to the PLP they think of landslides. But when you say 'winning' to today's membership they often think it implies some kind of moral compromise." When Corbyn supporters hear the words "Labour government" many think first of the Iraq war, top-up fees and privatisation, rather than the minimum wage, tax credits and public sector investment.

It was the overwhelming desire for a break with the politics of New Labour that delivered Corbyn victory. It is the fear of its return that ensures his survival. The hitherto low-profile Smith was swiftly framed by his opponents as a Big Pharma lobbyist (he was formerly Pfizer's head of policy) and an NHS privatiser (he suggested in 2006 that firms could provide “valuable services”). His decision to make Trident renewal and patriotism dividing lines with Corbyn are unlikely to help him overcome this disadvantage (though he belatedly unveiled 20 left-wing policies this morning).

Short of Corbyn dramatically reneging on his life-long stances, it is hard to conceive of circumstances in which the current Labour selectorate would turn against him. For this reason, if you want to predict the outcome, the polls are not the place to look.

George Eaton is political editor of the New Statesman.