Time to start worrying? Recession fears go mainstream


12:36 pm - July 11th 2011

by Duncan Weldon    


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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.

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.

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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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Reader comments


1. Aidan Skinner

3 and 4 are, of course, essentially impossible because of the savings investmnet identity…

2. Chaise Guevara

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

As such, it might be prudent to change this article’s You Can Panic Now headline.

Bread and circuses keep the proles content. Evidently, the government needs to put on bigger and better circuses right now – the Olympic Games aren’t up till next year.

I do not care whom was in power this was going to be a likely out come, problem for Labour it’s easy when your in opposition to cite the best way out, then again when labour was in power well look at us now.

Spend or not to spend, if you spend to get out of recession and fail then your in trouble, if you fail to spend your in trouble.

bet it’s all down the disabled again.

Don’t blame it all on George Osborne’s ignorance – spare a thought for the contribution of the banks too:

SMEs see bank loan rejections rise
http://www.ft.com/cms/s/0/fbe095be-abc3-11e0-8a64-00144feabdc0.html#axzz1RpQa0YtG

6. blackwillow1

Have’nt people been saying this since before the boy, George, gave his ’emergency budget’ speech? Every man and his dog, every woman and her cat, they were all telling him, and Cameron, that these cuts would not work, they needed a plan B. Despite all evidence to the contrary, Twatman and the Boy Blunder are determined to press ahead. They should be taking notes from all this scandal, paying close attention to the public response in regard to the coalition and how they handle it.

The realities between oposition and governing are coming starkly into focus now for the Tories. Its a lot different being top jolly in Bullingdon club and running the country.

8. blackwillow1

@7: Quite so, I cannot deny taking pleasure from seeing the tories squirm. And yet, a small part of me feels like I’m kicking a kitten in the face. In his press conference today, trying to flog the ‘Big Society’ dead horse in public again, Cameron did not look comfortable, more like a kitten that’s already been booted around the room, waiting for the next boot to come flying in. AAHOO THE FUCK AM I KIDDING? You run with scum Dave, you get treated like scum. Suck it up, take your medicine and then fuck off altogether. That’s my favourite part of all this, so far we’ve all focussed on the destruction of Murdoch, a worthy cause certainly, but I really am enjoying the possibilty that this could actually take Cameron out altogether. Prime Minister Clegg? I’d give that dick no more than six weeks before the tories beg for a general election, favouring the chance of defeat over the humiliation of being in a government based on, ‘CLEGGONOMICS’ You could’nt really blame them

Oh how Cameron must be yearning for the good old days of croquet on lawn, cucumber sandwiches and lashings of ginger beer before a jolly good rogerring before the clegg the fag had cleaned his shoes… ahhhh

Oh well,Ed, at least when this madness is over its going to take a 1945 style of Socialist retrenchment to put us back to some semblance of civilised order. Clause four anyone.

Well, at least we’re not spending money like water and heading the way of Greece, Italy, Portugal, Ireland, Spain….

I agree it is likely we are heading for recession, but isn’t this inevitable to some extent given the large amount of both private and public sector debt?

Interesting article from the FT:

http://www.ft.com/cms/s/0/81c47b4c-979b-11e0-9c37-00144feab49a.html#axzz1Rt5AEBQP

Suggests there is little evidence of a causel link between the deficit reduction strategy and reduced growth.

Also this financial year Alistair Darling was proposing spending cuts £2.5bn smaller than Osbourne’s which is less than one fifth of a percent of national income – unlikely to make any significant difference.

Blackwidow1 @ 8

To be honest, I wish I could see evidence of the Tories squirming, all we appear to get ‘is more of the same please’ and a demand for deeper cuts.

Over to Scott Sumner to dismantle this idiocy.

“British [Aggregate Demand] soars at a 9% rate in 2011 Q1”

http://www.themoneyillusion.com/?p=9524

15. Leon Wolfson

Fungus – If it’s “inevitable”, then why are other countries not heading the same way? They’ve recovered much more strongly…until now, when they’re seeing the same kind of zero-growth we are, just later, since they came to austerity later.

I’m sure you’ll wave models arround, but the real-world performance

Moreover, there is a world of difference in how cuts are handled. Many of the Tory cuts have been in areas which are disproportionately regressive and damaging to consumer confidence (the VAT rise, for example), and many of their “cuts” will end up either massively increasing the long-term workless count (benefit changes) or actually cost a great deal of money (legal aid changes).

Even slightly different cuts could easily have seen 2-3% difference in growth.

Gareth – Yes, of course we’re just fine. What’s that, borrowing is up because of no growth? The “moderate” austerity causing misery for millions? Oh yes, just FINE for you rich boys.

Oh how Cameron must be yearning for the good old days of croquet on lawn,cucumber sandwiches and lashings of ginger beer before a jolly good rogerring

That was John Prescott and his secretary wasn’t it?

Even slightly different cuts could easily have seen 2-3% difference in growth.

“slightly different” cuts adding 2-3% on real GDP? Details, go on, entertain us.

Gareth – Yes, of course we’re just fine. What’s that, borrowing is up because of no growth? The “moderate” austerity causing misery for millions? Oh yes, just FINE for you rich boys.

Jesus wept. I know statistics are hard, but not so complicated that you should just believe everything Duncan tells you. Year to date borrowing as a percentage of GDP is falling as expected. And your argument is that the we’ll get a recession because… well, because it’s all just so unfair? I see.

18. blackwillow1

@13: Well Jim, I remember previous scandals that engulfed the tories. The worse it got, the louder they shouted, “We’re in charge, do’nt panic!” Admittedly, they were mostly sex scandals, which damaged individuals, rather than the whole sorry shower, but this particular shit-hitting-fan episode is quite different to anything any government has faced before. Add to that the coalition factor, the tories need libdem backing more than ever, and we have a very strong possibility that the net result could be a vote of no confidence. Cameron has handled this one badly, very badly.

19. Leon Wolfson

@17 – Funny, consumer confidence is in the toilet, the economy is stalled, millions are to be driven from the areas with jobs, the NHS is in turmoil, the University system is being forced to destroying itself….

No, there are ways other than slash and burn.

@15 Leon,

All countries with massive debt will head the same way. Some are simply delaying the enevitable and are going to have a bigger fall.

The so called massive cuts are going to lead to an increase of public debt by £350bn over the course of this parliament. A survey out today shows that 70% of the public believe that national debt will reduce by £350bn. Sadly the public have no idea how serious our debt burden is.

21. Leon Wolfson

Fungus, no, they are going to lead to a LOT more than that, because as the economy stalls the Tories will need to borrow for basic programs, unless they slash those too (and cause a real humanitarian crisis here).

That’s what deliberately taking the growth out of the economy does. It’s not in any way averting a fall, it’s ensuring that there has to be a spiral which chews up people and spit them out…lost years of suffering for the people of the country.

Tory’s land.

Leon, you have clearly failed to read either Giles’ article or Sumner’s post. Repeating the same hysterical claims about the Tories “taking growth out of the economy” does not make them true.

The statistics show above-forecast inflation is causing the low real GDP growth. The “problem” we face is that a strong increase in spending this year is resulting only in higher prices, rather than higher output.

Your claim about “borrowing to pay for basic programs” shows complete confusion. “Borrowing to pay for basic programs” is what we have been doing for a couple of years, and what the likes of Paul Krugman advocate that we continue doing. If you think “borrowing to pay for basic programs” is a bad thing, you are supporting a faster deficit reduction.

You may have been misled by Ed Balls’ conversion to what Krugman calls “voodoo economics”: that running a larger deficit (through tax cuts) will reduce the deficit. It is – quite obviously – a lie; a deliberate obfuscation of the cyclical and structural deficit, to be specific.

The facts are: tax revenues are growing very strongly this year, and borrowing (as a % of GDP) is falling versus last year.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

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  2. Mabel Horrocks

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  3. Renee

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  4. Alastair Bealby

    Time to start worrying? Recession fears go mainstream http://bit.ly/q6qxpP

  5. LucaHelvetica

    http://t.co/W2q0tas – Worrying signs on the economy at the wrong time for Cameron

  6. Duncan Weldon

    Time to start worrying? Recession fears go mainstream http://bit.ly/q6qxpP

  7. Howard Reed

    @DuncanWeldon excellent on double dip recession: http://bit.ly/pUK02U Looks like we're headed for 2x dip

  8. fauxpaschick

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  9. Richard Murphy

    Time to start worrying? Recession fears go mainstream | Liberal Conspiracy http://ht.ly/5BgDM

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  11. Darren Christie

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  12. Lauren G

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  14. csignals

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  15. Jeffrey Newman

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  16. Lexin

    Time to start worrying? Recession fears go mainstream | Liberal Conspiracy http://t.co/o0Ckezc via @libcon





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