Out of recession – but only just
As the UK economy’s return to growth was slower and lower than expected, should we prepare for a return to recession? That could be the second dip of a W-shaped curve - but it might even stem from a revision of the figure that seemingly ended the slump.
The first official estimate of gross domestic product in the final quarter of 2009 showed growth of just 0.1 per cent – well below the 0.4 per cent economists were waiting for. That figure is based on a survey of just 40 per cent of the economy and will be revised at least twice in the following weeks. But the typical revision over the past decade has been 0.1 or 0.2 per cent.
So the slim growth of the first estimate might thus be doubled or trebled – but it could be wiped out altogether, showing that the UK had not left recession after all.
That would be a pessimistic view, but even optimists must admit that the recovery is slower than expected and will thus take longer. The official figures show the recession lasted at least from the first quarter of 2008 until the final quarter of 2009, reducing output by 5.9 per cent.
That’s deeper and longer than any recession since the second world war and means there is a lot to make up before economic activity returns to pre-slump levels if we’re going to do it at 0.1 per cent per month.
And that modest end-2009 recovery came despite a big boost from the car scrappage scheme that ends in February 2010. It was also inflated by 0.2 growth in the public sector (manufacturing and private services each grew by 0.1 per cent) that will fall when spending cuts are eventually announced.
And despite the length of the recession, the economic background has been exceptionally favourable to companies. Interest rates were low, inflation negative and it has been possible to cut pay rates.
A double dip was always possible but the hope was that the second fall would still leave the economy in positive territory – say a recovery to 2 per cent growth followed by a period of just 1 per cent. If the first estimate of the final 2009 figure is accurate then the second dip risks returning Britain to recession and a new government that squeezes the economy too hard could produce that result.
There are two areas for optimism. One is the hope that the revised figures show the first sign of recovery was stronger than that 0.1 per cent; the second reason is that the low pound will produce higher exports to countries whose economies came out of recession before Britain’s and which are growing faster.
