GDP Growth: The Fundamentals Haven’t Changed
GDP growth of 1% in the third quarter is obviously good news but today’s figures don’t mean that the crisis is over. Not by a long way.
First, we should consider the special factors that have boosted growth over the summer – as ITV’s Richard Edgar has already pointed out – Olympic ticket sales added 0.2% to growth and the timings of Bank Holidays over the Jubilee may have added around 0.5%.
Strip these out and we have underlying growth around of around 0.3% over the quarter – very close to NIESR’s estimate of 0.2/0.3%. Unless growth accelerates in the next two or three quarters then the OBR’s most recent estimates for growth of 2.0% in 2013 looks unattainable.
Second, we need to look at the longer term picture rather than concentrating on one quarter’s figures. Over the past year GDP has been flat, today’s numbers take us back to where we were last year. There has been almost no growth over the past two years – the longer term picture then is of an economy that is stagnant rather than growing.
Third, we need to consider the makeup of growth. Whilst GDP is flat over the past year that hides a lot of variation at the sector level, over the same period the service sector has grown by 1.3%, the production sector has fallen by 1.3% and construction output has collapsed by 10.8%. This raises serious questions about the extent of ‘rebalancing’ which we are achieving.
Fourth, the UK is well behind where it was expected to be. The economy has grown by just 0.6% since the Spending Review of October 2010, compared to an OBR forecast of 4.6%. During the same period both the US and Germany have grown by over 3.0%. We’re behind our peers and behind where we expected to be.
Finally, we still have a long way to go. GDP remains over 3% below its 2008 peak. On current, possibly optimistic OBR forecasts, it’ll be 2014 before we regain our pre-recession levels of GDP.
So far in 2012, the economy has grown by 0.2%. Even if GDP grew by another 1% in Q4 (very unlikely without the temporary boosts we got over the summer), overall growth would be just 1.2% for the year. By any stretch that would be a pretty abysmal performance.
Today’s figures are good news but they don’t change the fundamental picture – our economy is much weaker than it should be and the government isn’t doing enough to support growth and, as I argued earlier this week, we are set for a weak recovery.