Meanwhile, our economic growth prospects are tanking
Yesterday’s news that NIESR is forecasting growth of only 0.1% in the second quarter reminds us of quite how bad things currently are in the UK.
The Sunday’s David Smith has today referred to growing talk in the City that the number may even be negative.
This is all a far cry from the situation only 6 months ago – before the shock decline in Q4 2010 GDP was reported at the end of January.
Whilst there is now a very high chance that overall GDP growth in 2011 may come in at under 1%, only six months ago the average independent forecast was for growth of 2%.
This chart from HM Treasury’s monthly round up of forecasts shows how the picture has developed in recent months. It plots the average forecast for 2011 growth over the past 18 months – since January it has been nose diving.
The questions now are how low will it go? And what will this do to the deficit?
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Duncan is a regular contributor. He has worked as an economist at the Bank of England, in fund management and at the Labour Party. He is a Senior Policy Officer at the TUC’s Economic and Social Affairs Department.
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Reader comments
How can this be?
I thought it had been mathematically proved that fiscal contractions are expansionary:
http://faculty.arts.ubc.ca/mdevereux/jmac2003-expansionary.pdf
thank god for this
http://cmpo.wordpress.com/2011/06/28/employment-and-growth-paradox/
or we’d really be in the shit (imagine if in addition to current situation, unemployment was a couple of million higher).
(come on Bob, the authors claim no such thing)
Bob, Why don’t you read the paper before you cite it? Even just the first two pages would help…
The number for Q2 should be 0.3%. However, with the the ONS estimates any number is possible and then revised at some later date. NIESR did say that their forecasts have historically a margin of error of 0.2%. Considering there was an extra bank holiday during the quarter 0.3% would be just about oh kayish. The ONS estimate that an extra bank holiday depresses output for that quarter by anything between 0.2 and 0.7 percentage points. Therefore, if there is 0.3% growth then than implies underlying growth of at least 0.5% and annualised 2.0%. The bank holiday effect will reverse Q3. Things are not as bearish as you are implying.
I would previously have said quarterly growth of 0.8% was necessary to reduce unemployment. However, the UK labour market is a continuing mystery as the economy is creating employment growth even at these low output levels. Maybe it has something to do with negative interest rates causing increasing money velocity, but it is a real paradox.
I’m much reassured to learn that some usual suspects here are no longer insisting that fiscal contractions are expansionary.
But hey, check out my quotes here of Prof Alesina (Harvard), in a previous thread, for which I was congratulated for at last posting something vaguely relevant to a thread topic:
http://liberalconspiracy.org/2011/06/29/the-madness-of-osborne-expansionary-fiscal-contraction-explained/
I also there posted this:
Whatever the credibility of the notions of “fiscal contraction expansions” and the offered theoretical rationales, this fundamental holds:
Aggregate demand for goods and services will fall as the result of public spending cuts unless the gap is made up by compensating increases in consumer spending, business investment and/or from net exports.
As I posted several times before with supporting ONS links, there is no evidence of this happening so far:
http://liberalconspiracy.org/2011/06/16/ed-balls-speech-will-osborne-the-ostrich-fly/
Thanks to Luis @2 for that interesting link to Paul Gregg on what could be happening in the jobs market where employment has shown to be surprisingly resilient, despite the recession in GDP, perhaps because of employer hoarding to preserve valued skills on payroles.
Even Bill Clinton has expressed concerns about the UK’s great austerity experiment
we were supposed to be well on the road to recovery by now??
Interesting fact: in Q2 2010, the economy was growing by around 0.1% every nine days. If this prediction is correct, it has just grown by 0.1% in nine months. Way to go, George.
Burn baby burn…keep on cutting George , your cutting the throat of this filthy,criminal Coalition Junta. Methinks Labour had better dust off the battle-bus,we might just have a General Election to fight a lot sooner than one might think.
*bonk*
No, srsly, NOBODY could of forseen this.
….
Sigh.
Reactions: Twitter, blogs
- Liberal Conspiracy
Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w
- hsdeal.blogspot.com
Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w
- Natacha Kennedy
Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w
- Martin McGrath
In case you thought Coulson & NotW were the only reason to despise Cameron/Osborne don't forget the economy http://bit.ly/n8R5UU – They have
- David Taylor
Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w
- Herbert Pimlott
Meanwhile, our economic growth prospects are tanking – Liberal Conspiracy http://t.co/Zs0w8Ld #economy #ukpoli
- Brian Moylan
RT @libcon: Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w #ukeconomy #ukpolitics
- Richard Exell
RT @libcon: Meanwhile, our economic growth prospects are tanking http://t.co/wgJ6Yjj
- Luke Shore
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Michael
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Aaron Chandra
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- TheBiPolarBearMD
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Deb
RT @falseecon: In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Jim Grundy
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- NextGenerationLabour
Meanwhile, our economic growth prospects are tanking | Liberal Conspiracy http://t.co/soE1rv3 @DuncanWeldon via @libcon
- nico phillips
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Other TaxPayers Alli
RT @FalseEcon: In other news… the economy is tanking @libcon http://t.co/ykp0t0f #falseeconomy
- TheBiPolarBearMD
RT @FalseEcon: In other news… the economy is tanking @libcon http://t.co/ykp0t0f #falseeconomy
- Kate!
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Lucia Fry
#falseeconomy reminds that #NOTW isn't the only show in town – the economy is scarily weak http://bit.ly/pA3j4w
- James Davies
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- matthew jordan
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Chris Cormier
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Howard Jackson
This forecast is getting perilously close to negative growth. What are the odds it happens before the end of year? http://t.co/M4Yiyw1
- Shropshire Unison
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Woodside Labour
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Frances Coppola
RT @falseecon: In other news… the economy is tanking @libcon http://t.co/OSui5rW << but we knew it would….
- Midlands TUC
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Daniel Weichman
In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy
- Paul Evans
Maybe Tories actually welcome the #notw distraction – keeping disastrous economic news off the front pages? http://t.co/n6effav
- t hill
RT @libcon: Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w #ukeconomy #ukpolitics
- Sue Marsh
RT @libcon: Meanwhile, our economic growth prospects are tanking http://t.co/7CvaALr
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