The Lost Decade of Per Capita Growth
At 9.30 this morning we’ll get our first look at the Q4 GDP figures. They will almost certainly be very close to zero – and whilst the political debate will be shaped by whether they are just about negative or just about positive, they won’t (barring a really unexpected result!) tell us a great deal we don’t already know.
The expectation of both the OBR and independent economists (as surveyed by the Treasury) is that 2012 will be a year of very low growth overall. The simple fact is that the current recovery is historically weak – as best demonstrated by the below chart from NIESR:
But one often missed fact is that 2012 (on the OBR’s numbers) is, in one important regard, set to be a year of economic contraction. Whilst headline GDP growth is forecast to come in at 0.7%, the ONS forecast that the population of the UK will grow by 0.8%.
In other words per capita GDP (GDP per head) is set to fall this year.
The graph below shows GDP (in 2008) prices per capita (using the ONS population projection and the OBR’s growth numbers):
Looking at GDP per capita matters and tells us an awful lot more than simply looking at the headline numbers. If GDP were to grow by 5% but the population grew by 10%, people won’t be 5% better off – they’d actually be worse off.
2012 is set to see the first contraction in GDP per capita since 2009. On this measure we are set to double dip.
Indeed on the OBR economic growth forecasts and the ONS population projections it will be 2016 before GDP per capita returns to 2007 levels. In GDP per capita terms we
really are set for a ‘lost decade’.