From the TUC

Focus on a ‘triple dip’ misses the point

12 Mar 2013, by Guest in Economics

Will the UK economy experience a triple dip recession?

The simple answer is that I simply don’t know.  The more honest answer is that I don’t really think it matters. Today’s industrial production figures certainly point towards one, but last week’s PMI surveys’ suggest growth of 0.1%.

In reality whilst a triple dip would no doubt generate many headlines, the difference between a Q1 GDP figure -0.1% and one of +0.1% is pretty unimportant, especially as the figures are subject to revision for years afterwards.

The bigger picture is that the UK’s recent economic performance has been disastrous.

Whether compared to the original forecasts (on which fiscal policy is still based), to our international peers or to our own historical experience, this has been an extremely weak recovery.

The much-hoped for rebalancing has simply occurred. Today’s industrial production statistics tell us that industrial output is now back to 1992 levels. Business investment grew by 0.4% last year against an original forecast of 10.0%.  Net trade subtracted from growth.

The government expected growth of 2.3% in 2011 and 2.8% in 2012, with two thirds of that coming from an increase in business investment and an improvement in net trade. Instead we got neither the growth nor the rebalancing.

The result has been missed fiscal targets and a downgraded credit rating.

Real wage falls, coupled with changes to the tax credit and social security system, have given us the longest squeeze in living standards in modern British economic history.

The labour market is hailed as ‘good news; but as important research from the Resolution Foundation today demonstrates, we still face a job gap of 850,000 to get back to pre-crisis levels of employment.

Productivity growth has collapsed, risking a longer term impact on living standards and growth.

And despite all of the government’s rhetoric on the UK being in a ‘global race’ – whether you measure it by growth, exports, manufacturing output or living standards, the UK is falling behind the other leading economies.

Against a backdrop of terrible growth, no rebalancing, a living standards squeeze, a weak labour market and productivity falls, the difference between a small  contraction in Q1 and some small growth in Q1 doesn’t seem very important.

The economy is stuck and without a change in government policy the slump is set to continue.

3 Responses to Focus on a ‘triple dip’ misses the point

  1. jonathan
    Mar 12th 2013, 2:30 pm

    I think an interesting point is the failure of the idea that public money displaces private. With the reduction in public investment spending, private money should, by that theory, have no longer been displaced. Turns out it wasn’t so keen on flowing.

    But of course with stuff like this one can make arguments forever. Thus the failure of the displacement model means only that prior spent public investment has built up like a drain clog that currently limits private flow. It’s all in the perspective.

  2. gastro george
    Mar 12th 2013, 7:13 pm

    You seriously think that past public expenditure is preventing current private investment? Care to suggest a mechanism for this?

  3. jonathan
    Mar 12th 2013, 10:59 pm

    Read my comment again. I thought I was clear, but if not: people won’t give up on their wrong ideas but will stick with them even as their justifications become more remote. That past spending is a problem is in fact offered as a reason for today’s problems. I can see how believers would use that to argue about private investment now, though that credits them with thinking more deeply than they do.

    It’s a version of the “only God can make a tree” form of belief. As the old image of God as the literal maker of every object was pushed aside by evolution and other science, we saw more outrageously stupid ideas, climaxing with the resurgence of fact-denying young earth creationism and the nearly as idiotic intelligent design movement. Rather than accept that particular way of imagining God might be wrong, better to either deny fact or twist it beyond recognition. That is what being human is largely about.