The private sector can manage. Freed from the constraints of an unaffordably large public sector, the economy has the wherewithal to create more than 2m jobs in the next five years. That was the gist of the report from the Office for Budget Responsibility (OBR) brought forward yesterday in response to the Guardian's story about the employment losses from George Osborne's spending cuts.

The OBR's figures differed slightly from those in yesterday's Guardian, but not materially so. It estimates that public-sector employment will drop by 490,000 by 2014-15 and by 601,000 by 2015-16. That is broadly in line with the range of 100,000-120,000 jobs lost each year in the leaked Treasury impact assessment. It gave no specific numbers for the private-sector jobs that would be lost as a result of the knock-on effects of the chancellor's budget, but the figures in the Guardian story of 120,000-140,000 a year have not been challenged.

Despite that hit to jobs, the OBR said that overall employment would pick up in every year from now, rising from 28.89m to 29.97m by 2015. That's a net increase of 1.08m even after the impact of the budget is accounted for, and well over 2m jobs in all. If the OBR is right, the economy will be creating jobs at a rate of 400,000-plus on average in each of the next five years.

This is not impossible, but looks severely testing. In the recovery of the 1990s, when interest rates were cut aggressively and the pound depreciated by 25%, it took seven years for employment to grow by 1m. In the 13 years of Labour government after 1997, 2.5m jobs were created in a period that included a housing boom, a bubble in the City and the creation of 800,000 jobs in the public sector.

Quite rightly, Osborne thinks that the economy should be less dependent on consumer spending and financial services over the coming years, and is seeking a rebalancing of the economy over the next five years. Even if – and it is a big if – we are about to witness the long-awaited renaissance of British manufacturing, there is unlikely to be a big increase in employment in industry. Productivity is typically higher in manufacturing than the rest of the economy, and, thanks to the increasing use of hi-tech kit, needs to employ fewer and fewer people for the same amount of output.

So where would the 2m jobs come from? Financial services were never a big generator of employment even in the boom years, and the City is as likely to get smaller as bigger over the next five years. Construction is also unlikely to expand, as any pick-up in house building and commercial property will be matched by the drying-up of public-sector work. That leaves only three real motors of growth – retailing, business services, and personal services.

Yet a big increase in two of these sectors – retailing and personal services – requires consumers to have plenty of money in their pockets to hit the high street or to pay for gym-club memberships, beauty treatments and the like. Yet the OBR's breakdown of national output shows that consumer spending will grow far less rapidly than in the boom years.

Osborne has been advised that the need to finance big public-sector deficits is crowding out investment in the private sector and that paring back the state will lead to lower interest rates. It will be cheaper borrowing, the chancellor believes, that will deliver the jobs growth. The opposing economic camp says crowding out by the public sector is only a factor when the economy is operating at full capacity, when the public and private sectors are competing for resources. After the longest and deepest recession since the second world war, Britain has plenty of spare capacity.

For the OBR's forecasts to come good, Osborne needs three things. He needs interest rates – short and long-term – to stay low. He needs the international environment to remain benign. And he needs a lot of good fortune. To be fair to the chancellor, though, he never said it would be easy. It wouldn't have been easy under Labour either.