The Global Race: One step forward, one step back
After the release of the Service Sector PM it appears that the economy got off to a better start in January and the risk of a triple-dip (which would require GDP contracting again in Q1 2013) was diminished somewhat.
As Markit (who compile the PMIs) note:
Business activity picked up at the start of the year, according to the PMI surveys, pointing to a return to growth of the UK economy and greatly reducing the likelihood of the country falling back into a “triple-dip” recession. The all-sector Output Index from the three PMI surveys rose from 49.8 in December to 51.7 in January, signaling the strongest pace of expansion for four months. Historical comparisons with GDP suggest that a PMI reading of this level is consistent with the economy expanding at a quarterly pace of 0.1%.
Now obviously growth of +0.1% in the first quarter would be better than the -0.3% we saw in Q4 but it can hardly be called a success.
…at least the UK appears to be stagnating rather than actively shrinking. It fits with the view of the economy becoming corrugated — flipping from mild growth to mild contraction with the overriding trend being stagnating.
The trend is of an economy that has stagnated since Q2 2010. As I wrote after the release of the Q4 figures:
The record of the last two and half years is of a flat-lining economy, a huge squeeze in real incomes and a fiscal target that has now been missed. We might get a triple dip with the next set of figures or we might not – either way weak growth is set to continue with the latest independent forecasts pointing to growth of just 0.9% in 2013 as a whole.
Unless the Government changes course the long slump will carry on.
Compared to the initial OBR forecasts our growth has been disastrous:
The current recovery is historically weak – as NIESR have shown – it is weaker than the recoveries of the 1990s, the 1980s, the 1970s, the 1930s or the 1920s. It wouldn’t be long now until NIESR are forced to start printing their ‘recovery chart’ in landscape rather than portrait format.
Our current recovery is also terrible when compared to our international peers. The chart below compares UK growth to those of the other G7 economies since Q2 2010. Only Italy is doing worse.
As I noted before the Autumn Statement, the UK’s growth over 2010-2012 is currently ranked 158th out of 184 the countries the IMF provides data for.
And yet despite this the abysmal economic performance – whether measured against expectations, historical performance or international results – the government continues to talk about the UK competing in a global race.
The UK economy has contracted in five of the past ten quarters, for every step forward we then take another step back. If there is a global race we are losing it. We have barely left the starting line, we are running straight into the hurdles, we have dropped the baton, we keep moving backwards, we’ve fallen over, we’ve made a false start, we risk being disqualified, we’ve missed the time trials. Choose whatever bad racing analogy you prefer – it fits the UK data.
Sometimes I really don’t know what is more frustrating – the UK’s awful economic performance or the fact that the Government keeps boosting about it.
The slowness with which Japan’s economy deteriorated was in itself a source of much confusion. Because the depression crept up on the country, there was never a moment at which the public clamoured for the government to do something dramatic. Because Japan’s economic engine gradually lost power rather than coming to a screeching halt, the government itself consistently defined success down, regarding the economy’s continuing growth as a vindication of its policies even though that growth was well short of what could and should have been achieved. And at the same time, both Japanese and foreign analysts tended to assume that because the economy grew so slowly for so long, it couldn’t grow any faster.
So Japan’s economic policies were marked by an odd combination of smugness and fatalism – and by a noticeable unwillingness to think hard about how things could have gone so wrong. (My emphasis)
Sounds familiar doesn’t it? But at least the Japanese didn’t boost about their performance in a ‘global race’.