Government spending ‘will not stimulate economy’ in 2011

THERE is no foreseeable way government spending can stimulate the economy’s fragile recovery next year, according to UniCredit economist Gillian Edgeworth.

She believes the economy has turned a corner and the recovery remains fragile. But she said the Government faces the task of not only passing a budget at huge political cost but also engineering a fiscal plan which does not erode the tentative recovery.

“There is no foreseeable outcome where fiscal policy supports the economy next year. But the Government hopes to present a budget which, via an improvement in credibility and confidence, lowers interest rates and offsets some of the downward pressure on economic activity from the fiscal contraction.