Tucked away in Budget paper No.1 is a fascinating little chart that is arguably the most politically important piece of data in the entire Budget, as it justifies not just the very existence of the stimulus program and the political baggage that is coming with it, but also shows the likely consequences of the alternative “what if the stimulus was smaller or didn’t exist” scenario.
You can see the treasury version of the chart over in Statement 2 of Budget Paper No. 1 — “Box 4: Economic growth and fiscal stimulus”. However, that treasury graphic is a bit of a chart crime, so we can reproduce it ourselves from the raw data cited in the Budget papers.
In early 2009, the IMF made GDP forecasts for several countries based on what the prevailing economic outlook was for those countries at the time that the forecasts were made. Those forecasts came in like this:
During the period between when these forecasts were made and today, these nations deployed fiscal stimulus packages of varying sizes. You can see the size of the stimulus packages as a proportion of GDP in the table on page 36 of this IMF document — under the 2009 column “Crisis related discretionary measures”. This was the size of the stimulus packages for each of these nations as a proportion of GDP:
The third and final piece of data we need is the actual growth achieved by these nations in 2009, which the IMF also provides over here.
This is what they come in as (using last night’s Treasury data to substitute for the Australian entry):
So what was the impact of the stimulus on GDP growth across nations? To find out, if we subtract the 2009 IMF forecast growth from the actual growth achieved in 2009, it tells us the forecast error — or the amount by which the original GDP forecast for each nation was out.
That then allows us to compare the size of the various stimulus packages to the size of those forecasts errors via a scatter plot and regression — if the stimulus packages explain the forecast errors (in that, the bigger the stimulus package, the better the economy performed over its original forecast), then we should see a tight linear relationship with nations starting in the bottom left-hand corner (representing small stimulus and small errors) going roughly linear up until the top-right corner (representing large stimulus creating large forecast errors).
So what does the chart look like?