The GDP Numbers: Five Key Points
I wrote this morning, before the GDP figures were released, that they were unlikely to tell us anything we didn’t already know. The quarter-on-quarter contraction of 0.2% was a little worse than expected but not especially surprising. It’s always important not to over-analyse one data point – especially one subject to revision – but the key trends have been clear for some time.
The two key facts were already evident before this morning’s release – this is the worst ‘recovery’ in modern British economic history and GDP per capita is not expected to regain 2007 levels until 2016. In other words, on the OBR’s numbers we are already in a ‘lost decade’.
Today’s numbers though do tell us something. The five key points, as I see them, are:
1/ The awful manufacturing numbers suggest that an ‘export-led recovery’ is unlikely. The Eurozone crisis is starting to have an impact on GDP figures, one that is set to continue and worsen into 2012.
2/ But the Economy was already stagnating well before the Eurocrisis. The stagnation in the service sector at the end of 2011 is part of a long-running collapse in domestic demand. Something that can’t be blamed on Europe. Exports prevented us from falling into recession in 2011, that prop to growth now seems unlikely.
3/ This fall in GDP is a lot more worrying than the one in Q4 2010. Back then ‘special factors’ (the snow) were at least partially to blame and so GDP bounced back in Q1 2011. This time GDP fell without ‘special factors’.
4/ The -0.2% result was a tad worse than the OBR expected (-0.1%). It appears the November forecasts are already looking a bit too optimistic. Again.
5/ In terms of the impact of austerity, it has been noted that ‘government services’ was one of a few bits of the economy actually growing in Q4. But ‘government services’ in this GDP release don’t map exactly to ‘government spending’. The large fall in construction output could be linked to the government’s cut in its own investment, equally the stagnation in the service sector is at least partially caused by the VAT rise.
Does this mean that a double-dip recession (I.e. two quarters of negative growth) is now likely? It’s certainly more likely than it was before the release but in some ways, despite being politically charged, it’s an irrelevance. Unemployment is rising, living standards are being squeezed and the per capita GDP is likely to fall regardless.