Duncan’s Economic Blog

That GDP number – some quick thoughts

Posted in Uncategorized by duncanseconomicblog on January 25, 2011

The quickest of quick thoughts.

– The -0.5% number is horrible, even with the snow it suggests a lackluster performance in Q4 with no momentum going into the cuts.

– The full year figure of 1.7% has missed the OBR’s 2010 forecast of 1.8%, made only 8 weeks ago. Suspect 2011 and 2012 will now be revised down.

– Manufacturing is doing well but it only employs 2.5m people, not enough to generate growth and jobs for whole economy.

– Threats to manufacturing next year include the Eurocrisis (biggest export market), higher commodity prices and continued difficulties with financing.

– We’d expect some of the demand lost in Q4 because of bad weather to come through into Q1 2011, but hit to confidence from this bad news plus VAT rise may constrain that.

– This was a surprise but maybe it shouldn’t have been – retail sales in December were awful (worst drop since 1988), unemployment was rising in November and Markitt reckon the service sector (crucial to the UK) was stagnating in December.

– Cutting starting in April strikes me as crazy. The Fiscal Responsibility Act 2009, which set out Darling’s 4 year plan, allowed for the pace of deficit reduction to be slowed if the economy did badly. Strongly suspect Labour in office would be rethinking tough cuts in 2011 at this point.

– We’ll obviously get revisions next month but unlikely to make this number positive 

– Going into 2011 we have rising unemployment, record youth unemployment, high inflation and a contracting economy. This isn’t looking great.

12 Responses

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  1. Left Outside said, on January 25, 2011 at 11:19 am

    Plus, as a result the pound is down sharply too, which may well lead to another round of imported inflation, which makes monetary stimulus unlikely, and monetary stimulus is exactly what is needed in the face of prolonged fiscal austerity (c.f. mid-1990s Canada). We’re buggered Duncan.

  2. Dave Holden said, on January 25, 2011 at 12:01 pm

    That’s a pretty good summary.

    The sad fact is there is no easy way out the largest debt driven asset price bubble in history.

    The Tories have gone down the cut spending and cut taxes route.

    Labour proposed a similar path but with less cuts and more taxes.

    Both are really dancing on a pin head around some cuts/taxes combination that will magically conjure up growth irrespective of the required deleveraging.

    What I think will be interesting but unlikely is if Balls does an about face and actually proposes a true Keynesian approach, i.e. very large increases in spending to increase demand.

  3. gastro george said, on January 25, 2011 at 1:11 pm

    I would expect Balls to move towards an implicit Keynesian approach while explicitly keep the current policy (if you see what I mean). The former to appeal to the general public, the latter to keep the City and the press on board.

    The Tories will complain loudly about the former, but won’t have a leg to stand on if the economy tanks and/or we have a major disaster in the (politically too many) public service reorganisations.

  4. […] the numbers are still terrible, and the poor numbers are definitely not just about poor weather. Duncan has some interesting preliminary […]

  5. David said, on January 25, 2011 at 2:50 pm

    There’s a couple of things I don’t understand. Firstly this number is a huge shock that no-one predicted and yet the annual figure is only one percentage point off the OBR’s annual estimate (1.7 compared to 1.8). Secondly is it really possible for the bad weather to knock 0.5% off the economy?!?

    • duncanseconomicblog said, on January 25, 2011 at 4:09 pm

      The OBR full year forecast looked very light given Q1 -Q3 growth.

      It can, but seems a very severe effect!

  6. Newmania said, on January 25, 2011 at 6:02 pm

    Unless you an alchemist or the inventor of perpetual motion its a nice easy ‘what goes up…’
    We borrow and print money and get growth ( of a sort) we stop borrowing and printing and its stops . Simples mate. At best the whole excercise was only a stop gap.

    Can`t see the big deal .

  7. gastro george said, on January 25, 2011 at 6:46 pm

    And your recipe for growth is …?

  8. […] That GDP number – some quick thoughts « Duncan’s Economic Blog Some useful points on today’s GDP figures from Duncan Weldon. He concludes that “going into 2011 we have rising unemployment, record youth unemployment, high inflation and a contracting economy. This isn’t looking great.” Related posts (automatically generated):Oil prices in 2011 […]

  9. yorksranter said, on January 27, 2011 at 12:21 pm

    In fact, it’s possible that the snow actually helps the numbers. The public sector is a huge chunk of total new construction, and y’know, they started slashing lumps out of that as far back as July (notably Building Schools for the Future). Arithmetically, the cut to construction starts has to show up somewhere – and aren’t there also some projects that have been halted in progress?

    It may be that the snow masks the impact of cuts on construction. Interestingly, the OBR forecasts expect a big net contribution to GDP from construction this year – that was always wildly conflicting with the cuts to public sector investment, but now it’s looking delusional.


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