Published: July 8th 2011 - at 4:39 pm

Meanwhile, our economic growth prospects are tanking


by Duncan Weldon    

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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About the author
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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Story Filed Under: Blog ,Economy


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Reader comments


1. Bob B

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

2. Luis Enrique

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)

3. vimothy

Bob, Why don’t you read the paper before you cite it? Even just the first two pages would help…

4. Richard W

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.

5. Bob B

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.

6. skooter

Even Bill Clinton has expressed concerns about the UK’s great austerity experiment

http://www.leftfootforward.org/2011/07/knowles-needs-to-listen-more-carefully-to-hero-clinton-on-deficit-reduction/

we were supposed to be well on the road to recovery by now??

7. G.O.

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.

8. trev1959ad

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.

9. Leon Wolfson

*bonk*

No, srsly, NOBODY could of forseen this.

….

Sigh.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w

  2. hsdeal.blogspot.com

    Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w

  3. Natacha Kennedy

    Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w

  4. 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

  5. David Taylor

    Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w

  6. Herbert Pimlott

    Meanwhile, our economic growth prospects are tanking – Liberal Conspiracy http://t.co/Zs0w8Ld #economy #ukpoli

  7. Brian Moylan

    RT @libcon: Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w #ukeconomy #ukpolitics

  8. Richard Exell

    RT @libcon: Meanwhile, our economic growth prospects are tanking http://t.co/wgJ6Yjj

  9. Luke Shore

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  10. Michael

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  11. Aaron Chandra

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  12. TheBiPolarBearMD

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  13. Deb

    RT @falseecon: In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  14. Jim Grundy

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  15. NextGenerationLabour

    Meanwhile, our economic growth prospects are tanking | Liberal Conspiracy http://t.co/soE1rv3 @DuncanWeldon via @libcon

  16. nico phillips

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  17. Other TaxPayers Alli

    RT @FalseEcon: In other news… the economy is tanking @libcon http://t.co/ykp0t0f #falseeconomy

  18. TheBiPolarBearMD

    RT @FalseEcon: In other news… the economy is tanking @libcon http://t.co/ykp0t0f #falseeconomy

  19. Kate!

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  20. Lucia Fry

    #falseeconomy reminds that #NOTW isn't the only show in town – the economy is scarily weak http://bit.ly/pA3j4w

  21. James Davies

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  22. matthew jordan

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  23. Chris Cormier

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  24. 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

  25. Shropshire Unison

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  26. Woodside Labour

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  27. Frances Coppola

    RT @falseecon: In other news… the economy is tanking @libcon http://t.co/OSui5rW << but we knew it would….

  28. Midlands TUC

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  29. Daniel Weichman

    In other news… the economy is tanking @libcon http://t.co/OSui5rW #falseeconomy

  30. Paul Evans

    Maybe Tories actually welcome the #notw distraction – keeping disastrous economic news off the front pages? http://t.co/n6effav

  31. t hill

    RT @libcon: Meanwhile, our economic growth prospects are tanking http://bit.ly/pA3j4w #ukeconomy #ukpolitics

  32. Sue Marsh

    RT @libcon: Meanwhile, our economic growth prospects are tanking http://t.co/7CvaALr





Sorry, the comment form is closed at this time.

 
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