When will the economy recover?
I blogged this morning on the weakness of the argument that ‘the economy is healing’, it has since occurred to me that there is a much easier to make the same point.
The case that we are now experiencing a recovery relies upon looking at the upgrades to GDP forecasts but, as I noted this morning, real wages are still falling.
Taking stock of current forecasts, when exactly can we call a recovery in the UK?
First we need to define exactly what we are talking about because depending on the measure chosen, we’ll get very different numbers.
GDP is expected to reach its 2008 level at some point in 2014. By this measure then we could argue that the economy will have ‘recovered’ within 18 months.
But GDP per capita (which accounts for population change) is not expected to reach its 2008 level until 2017. So by this measure, which is more reflective of most people’ s experience than headline GDP, ‘recovery’ is still some four years away.
But even GDP per capita is a poor measure of most people’s experience – it is a mean rather than median and so is distorted by inequality, a huge increase in the income of the top 1% could boost GDP per capita whilst living standards continued to flat-line for everyone else.
If we look at median real wages then we won’t be back (on current forecasts) to 2008 levels until the early 2020s*. ‘Recovery’ measured through median real wages is a decade away.
We have heard a lot recently about how the economy is ‘recovering’, for most people though recovery seems an awfully long way away.
*The Resolution Foundation forecast only runs until 2017, at which point real median wages will still be 11% below their 2008 level.