ONS Christmas present to Chancellor: a slump in nominal GDP
The final release of economic figures for 2015 does not make happy reading for the Chancellor.
Headline GDP for 2015Q3 is revised down to 0.4% from 0.5%; Q2 was 0.5%. On the annual measure comparing with the same quarter a year ago, growth is now 2.1%, revised down from 2.3%.
This really does little more than re-affirm what we already knew: growth slowed into 2015 after a surge in 2014.
But the nominal (i.e. cash) revisions are more striking. On the same quarter a year ago, growth in 2015Q3 is now estimated at 2.1%, last month the same figure was estimated at 3.4%. The change follows a major revision to the GDP deflator, which now shows 0.1% when last month it was 1.2%. ONS tell me this change was driven mainly by reassessment of government and GFCF deflators.
As the chart below shows, nominal GDP has now slowed abruptly from around 5 per cent at the start of last year to 2 per cent, with both slower real growth and the deflator now in near deflationary territory:
GDP measures, growth quarter on year ago
In fact nominal GDP growth has only been slower on two occasions: over the financial crisis of 2008-2009 and a one-off in 1958.
The other striking feature of the data set is a very low saving ratio: at 4.4 per cent in 2015Q3, the same as in 2015Q1. Over the three quarters of 2015 the average saving ratio is 4.6 per cent, no calendar year on records that extend to 1963 have shown a lower reading. We all know why this is – continued reliance on consumer spending and the cumulative effect of the slump in wages growth since the crisis (notwithstanding any recent gains). In the meantime secured and unsecured household debts continue to rise to new highs.
The GDP figures must help explain why the improvement in the public sector finances have seemingly stalled, with revenue growth slowing quite abruptly. The evidence that the recovery (so ingeniously engineered to coincide with the election) is running out of steam continues to mount. Deflationary concerns have not gone away, and the wider ramifications may now be emerging. 2016 is likely to be no picnic.