GDP figures: The Long Slump
Yesterday's GDP figures will no doubt see much commentary focused on how the UK now faces the risk of an unprecedented triple dip recession - but rather than looking at one or two quarters of data, it is usually more sensible to take a longer term view.
It has now been ten quarters since the ‘emergency’ Budget of 2010. Since then, the economy’s performance has been disastrous.
Whether we get a triple dip or not is actually beside the point – we’ve already had two and half years of stagnation.
The chart below compares actual GDP growth to the original OBR forecasts, on which the Government’s plans were based.
Since the second quarter of 2010, the economy has managed growth of just 1.1% against forecast of 6.5%.
This large miss is partially explained by the OBR using estimates of the fiscal multiplier that turned out to be far too low.
The economy is still around 3.4% below its pre-recession level – and if the average pace of the last two and half years were to be repeated, it would be almost another 8 years before we regain 2008 levels of GDP.
GDP per capita – a more important driver of living standards than headline GDP as it accounts for the rising population – fell in 2011 and 2012.
We are performing badly relative to our international peers and terribly against our own historical recoveries.
The third quarter was boosted by special factors such as Olympic tickets sales and the timing of bank holidays – the second quarter was depressed by the Jubilee. Today’s figures allow us to look at 2012 as a whole with fewer distortions. We had zero growth.
Yesterday’s release contains no evidence that the much hoped for ‘rebalancing’ is occurring. Manufacturing output is lower than in Q2 2010 and construction output has dropped by almost 10% in the same period.
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.
Duncan Weldon is senior policy officer at the TUC and blogs at Touchstone.
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