New data suggest austerity played a bigger part in stalling recovery
Today the Office of National Statistics hosted their quarterly economic forum. As part of a review of the extensive Blue Book revisions, they updated the comparison of the profile of real GDP through each of the post-Second World War recessions. The updated version hints at a very interesting story about the recession and recovery.
(These ONS analyses compare the evolution of recessions, by constructing index numbers from the peak quarter for each recession through the quarterly profile across a number of years, and showing the indices alongside each other; the x-axis then measures the number of quarters since the peak.) The ONS analysis is shown below.
It is more helpful, however, to see this against the evolution of the previous view of the current recession – I have mimicked the colour scheme etc .
The new and old variants of the great recession are in solid black and dotted black respectively. On the old (dotted) basis the recession declined to an unprecedented extent and its recovery was slower than in any of the other post-war recessions (i.e. the line was below all the other lines ). On the new basis the extent of the decline was less atypical (though more abrupt), and the initial stages of the recovery were fairly in line with the two recessions that started in 73 and 79.
Translating this into real time, over the final years of the Labour administration in 2009 and into 2010, the economy was in a similar place to the two recessions that started in the 70s.
It held these gains in the early years of the Coalition, but fell decisively behind the experience of the 73 recession thirteen quarters after the peak =2011Q2, and the 79 recession fifteen quarters after the peak = 2011Q4.
Now presumably the Treasury will revert to type and explain this as the impact of the euroarea debt crisis on UK trade. From a practical perspective this has always seemed unsatisfactory – why retract government demand when the your main source of external demand is imploding (not to mention an implosion driven by policies that are supported by the UK government)? But the same ONS assessment also shows the contribution of trade (in green, among all other demand factors) to the recovery (from 2009Q2) both before and after revisions:
Strikingly, while net trade is more of a drag on growth than previously estimated, this comes earlier throughout 2010; in 2011, the trade effect is more neutral; moreover these effects are also very small against other sources of demand – not least the substantially changed view on gross fixed capital formation (GFCF – in red) discussed previously, so that trade plays a very minor role in overall outcomes. There is more going on here than a euroarea crisis: the Coalition came in, intensified austerity and demand faltered; it will be interesting to see what the OBR make of it all.
(The OBR usually issue a forecast evaluation report in October, looking at the outcome of their forecast taking into account ONS revisions, as far as I am aware this is not scheduled yet.
Update: it is scheduled of course: next week, Thursday 16 October.)