From the TUC

GDP results: where’s our private sector-led recovery?

25 Jan 2013, by in Economics

Today’s GDP figures are bad: after last month’s 0.9 point increase, we have come back to earth with a bit more than a bump – a 0.3 point fall. (But always remember that these are preliminary results, there’ll be revisions of these figures.) As Duncan has pointed out, the key point here isn’t whether we’re going to have a triple-dip recession: it really doesn’t matter if the first quarter of this year shows a tiny bit of growth or a similar fall.

The big problem is the stagnation of output since late 2010: GDP in 2012 was still 1.3 per cent down on 2008. Post WW2, our trend rate of growth was 2.5 per cent a year, in more recent years we have averaged 2 per cent.

Over the ten quarters since the great recession ended in this country it would be reasonable to expect at least 5 per cent growth. (I say ‘at least’ because you could expect growth to be higher once the recovery is established – 2 per cent growth is an average for good times and bad.)

The actual figure is 2.9 per cent. This level of growth is sometimes called a “growth recession” because we need trend level growth to maintain prosperity – a better name for it is stagnation.

If these preliminary figures are correct, in 2012 GDP literally stagnated: overall growth was 0 per cent for the year. When the figures are broken down into the different categories of output, the overall result is that agriculture didn’t have much impact, production and construction reduced overall growth by 1.1 per cent and services had an equal impact the other way. When services are broken down government and “other” services made positive growth contribution to the whole economy worth 0.4 points:

Contributions to GDP growth in 2012

Agriculture, forestry and fishing




     Mining & quarrying




     Electricity, gas, steam & and air


     Water supply, sewerage etc






     Distribution, hotels & restaurants


     Transport, storage & communication


     Business services & finance


     Govt & other services




Without this contribution the economy would have shrunk last year. We shouldn’t confuse this category with the public sector, it includes the arts, entertainment and recreation, which grew very strongly last year:

Contribution to govt and other in 2012

Health & soc work

+ 53.9%

Arts & entertainment

+ 31.4%


+ 10.2%


+ 8.5%

Public admin, defence, soc sec

+ 5.8%

Other – 9.8%

(Calculated from Index of Services data.)

Don’t confuse these results with the claim that we aren’t really making any cuts. A lot of the cuts so far have been in capital spending and the overall contribution the public sector makes to GDP is going to shrink as service sector cuts accelerate – it’s noticeable that the important contributions to growth don ‘t come from the civil service or education, but from health and social work, reflecting the fact that cuts have been constrained by the government’s promise not to cut the NHS.

When private sector demand is feeble, the government should be making up the difference. The problem is that government spending right now is not high enough. Without the public sector contribution; the economy would have shrunk by 0.2 or 0.3 per cent last year but it should have been doing even more. This morning, a fascinating tweet from >RBS Economic Insight pointed out that 2008 – 12 was “the weakest four years of GDP performance outside post-war demobilisations since at the least the 1830s. Yes, the 1830s.” A government that refuses to act in these circumstances is a national disgrace.