Duncan’s Economic Blog

The Double Dip warning goes mainstream

Posted in Uncategorized by duncanseconomicblog on July 11, 2011

Having long warned that the Government’s economic agenda risked harming Britain’s recovery, I finally stuck my neck out in April and wrote that I now thought a double dip recession was more likely than not*.

I wrote that to avoid a recession four (nearly impossible) things have to happen in 2011:

1 – The impact of spending cuts on growth has to be a lot lower than the IMF estimate them to be.

2 – We have to experience very fast export growth (despite our major trading partner, the EU, being wracked by problems and austerity) and, at the same time, historically slow import growth.

3 – We need a mid/late 1990s style investment boom. Something that is not happening yet.

4 – The household savings ratio has to fall and households having to starting borrowing and spending again.

I was aware that this call was out of the consensus – but as I mentioned at the time, in June 2008 (when the last recession had actually started!), almost no mainstream commentators were predicting one.

Back in April the average forecast for 2011 growth was 1.7%, down from 2.0% in January. It has since fallen to 1.5% and looks to be revised down again. There is now a lot of talk that it could be under 1%. In other words the trend is towards forecasts coming down.

Last week we learned that industrial production is clearly double dipping already and that the hugely respected NIESR research is now forecasting growth of only 0.1% in the second quarter.  

This has been followed by widespread reports that many city economists are now predicting an actual fall in Q2 GDP.

In 15 days time, on 26th July, we’ll find out one way or another exactly what the Q2 figure is – but even if it comes in positive the outlook for the economy is deeply troubling.

The ‘double dip’ view seems to be going mainstream.

* I fully take onboard Chris Dillow’s points about why forecasting a recession isn’t necessarily a great idea.


5 Responses

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  1. Dave Holden said, on July 11, 2011 at 10:25 am

    It’s says much about the Economics profession that predicting a double dip is considered “sticking your neck out”.

    To paraphrase Clinton – It’s the debt stupid*

    * no insult intended 🙂

  2. Granger said, on July 11, 2011 at 10:39 am

    In other news on this blog, Duncan agrees that sky will be blue on clear days.

  3. Paul Newman said, on July 11, 2011 at 4:56 pm

    We have gone on taxing the private sector and throwing money at the Public sector and carrying the regulatory burden New Labour bequeathed . Brown set all the taps to max and now they have to be turned down a notch ..I predicted this from the start .
    I do not understand all this glee about the travails of the country Duncan all you ever have to suggest it borrow print and throw at Public sector pensions .The fact the supply side of the Economy will not respond is not something achieved by the coalition in a few months surely even you must see that ?

  4. BenM said, on July 11, 2011 at 7:07 pm

    @Paul Newman

    Supply side economics is a dead religion. Reality turned up and exposed it as hocus pocus nonsense.

  5. Barry Thompson said, on July 11, 2011 at 9:25 pm

    Charity income is down. It’s all pointing to double dip.

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