Today’s growth figures: on the boundary between ‘terrible’ and ‘merely bad’
We now know (pdf) that the economy has been stagnant for the past six months, with no growth since the end of September.
Today’s figures – showing that the economy grew by just 0.5% in the first quarter of this year – will be a huge disappointment for the Treasury. Whilst 0.5% growth is usually perfectly respectable, the context here is all important and that context is that GDP fell by 0.5% in the previous quarter due to ‘bad weather’. This is growth we would normally expect the economy to make up in the following quarter.
- Given that snow subtracted 0.5% from growth in Q4, we should expect this to ‘bounce back’ in Q1.
- In addition, some services and purchases (according to the ONS) were postponed in Q4 and should now fall into Q1. So the real minimum we are looking for is about 0.7%.
- If 0.7% would represent no real growth over two quarters, then 1.2% would show the expected bounce back from Q4 plus the economy growing at ‘an average pace’ in Q1.
- ‘Arguably’ (says the FT) it should be even higher, around 1.7% if we account for some of the underlying stagnation in Q4 being reversed.
As I summarised:
So, I think it’s fair to say, that any number below 0.5% would be terrible, 0.6% to 1.2% would be merely bad, 1.3% to 1.7% would be reasonable (ie what we should expect but nothing to get excited about) and over 1.7% would be good.
0.5% is on the boundary between ‘terrible’ and ‘merely bad’.
The Treasury line today appears to have been to claim that the economy is ‘on track’, raising the question ‘on track to what exactly?’
‘Treasury sources’ have also pointed out that 0.5% growth is the same as that experienced by the US. This is a completely bogus comparision. The US economy did not contract in the preceeding quarter and has grown over the past six months.
The more detailed data point to manufacturing remaining a relative bright spot (up 1.1% in both this quarter and the last), although it is questionable for how long this relatively small sector can continue to carry the UK economy. Worryingly recent indicators, such yesterday's CBI survey of new orders, point to a slowing down there.
The construction numbers are simply terrible: down 4.7% in Q1 2011 and 2.3% in Q4 2010. This sector has re-entered recession.
The economy hasn’t grown for six months and the real cuts are just about to bite. Osborne’s gamble is looking increasingly reckless.
Duncan Weldon is senior policy officer at the TUC and blogs at Touchstone.
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