Published: October 26th 2010 - at 7:09 pmThat GDP growth? Mostly from Labour spending
Over at the Financial Times, Gavyn Davies blows a hole in the argument that today’s GDP growth figures support Coalition policy:
Consequently, all we know from today’s data is how the 3.2 per cent growth rate breaks down into output sectors. This is where the numbers look somewhat less encouraging, because they have been substantially boosted by strong growth in public construction projects – a sector of the economy which is about to contract quite sharply.
Construction output grew by 4.0 per cent in Q3, and this alone added 0.25 per cent to the level of output during the quarter, or 1.0 per cent to the annualised growth rate of the economy. Much of this came in the public sector, due in part to the lagged effects of Labour’s stimulus packages, and in part to a catch-up from the exceptionally bad weather in Q1.
Unfortunately, we can already see that this boost will be temporary, because construction orders have now turned negative. In fact, it would not be too surprising if this sector drags down GDP growth by around 0.5-1.0 per cent in coming quarters, thus eliminating much of the boost we have seen in the past two quarters.
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Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments
I think you have an unintended double negative in your opening sentence there, but by all means leave it in 
But it is true that there is a lot of lag in government policy, and a fair amount of lag in growth statistics. But doesn’t this mean if you wait for 4 quarters of growth – which we now have – before dealing with the deficit, there will be probably 7 or 8 quarters of growth before policy has any effect? That starts to become quite a long way towards when the next recession is due anyway in a normal boom bust cycle, which wasn’t abolished after all. And that’s just following Labour’s policy of starting the cuts with this month’s spending review. Follow Balls’ denialism, and we’ll be most of the way to the next recession before we’ve started to deal with the fiscal legacy of the last one.
Hah! thanks for spotting that Joe – I wrote this in a hurry. Now updated.
to answer your point: Follow Balls’ denialism, and we’ll be most of the way to the next recession before we’ve started to deal with the fiscal legacy of the last one.
I think you’ll soon be praying for Balls’ so-called ‘denialism’ when it becomes clear that magic fairies are not going to usher in a new era of job creation anytime soon.
Labour’s argument in sum:
1) We have growth, thank Labour
2) It’s not as high as last quarter, blame the Tories.
Sonny
once again – as last week – you seem to be confused. The article says that 0.25% of the 0.8% was from construction, and baldly states – without supporting data – that “MUCH of this came in the public sector, due IN PART to to the lagged effects of the Labout stimulus package…” well even if this is correct, and even if ALL of the .25% was due to the public sector and if ALL of that was dure to Labours stimulus, neither of which is the case – that would still not be MOSTLY – it would be 32% – of the growth. So your conclusion- header of your blog – is not in fact supported by the article .
saludos
Michael Clancy
I wonder what the story would have been had growth been poor – no doubt it’d have been the Tories fault eh?
It’s always same when economic figures come, whether Tory or Labour – poor figures were to be blamed on the other side, good figures to be praised on your side. It gets a little old after a while.
Why can’t we just be happy there’s growth? That’s good news – that means more jobs, more money, more chances for the poor. Who cares who should get the credit?
Michael Clancy,
I’m afraid your understanding of the figures falls quite short of a proper economic analysis. To restrict the effects of Labour stimulus spending to the 32% which can be directly attributed to that spending is to ignore the interdependent nature of growth in different sectors, particularly in terms of consumer and business confidence.
Mark
this may be true, and worth a thesis in itself, but i am merely correcting sunnys incorrect missapplication of the facts in Gavyn Davis’ piece
Michael
Basic economics doesn’t require a thesis.
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RT @sunny_hundal Today's much trumpeted GDP growth mostly came frm Labour stimulus spending http://j.mp/9cxR6a Hear that from Labour leaders
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