Why a second recession is now more likely than not


11:10 am - October 11th 2011

by Richard Exell    


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Yesterday, the GMB pointed out that the number of jobs lost in local authorities since May 2010 passed the 100,000 mark.

The CIPD reported that 610,000 public sector jobs are likely to be lost by 2016 – two hundred thousand more than the forecast from the Office for Budget Responsibility.

Last week, I reported that two-thirds of managers think a double-dip recession is likely and now a survey of finance directors finds 43% of them thinking along the same lines.

I think they’re probably right.

Look at the GDP figures : over the past 9 months net growth is 0 per cent, and the results for the past two quarters have had to be revised downwards. But look at the figures in more detail: GDP is only being held up by government spending, which in the last quarter rose by the largest amount since the start of 2008. The contribution to GDP growth made by government spending has increased in the first quarter of this year, rising from nothing at the end of 2010, to 0.2 percentage points in the first quarter of 2011 and 0.3 in the second:

If the government sticks to Plan A and continues to make cuts this contribution is very likely to fall; if that had happened in the most recent quarter we would already have declining GDP.

Business investment isn’t growing as fast as expected: year on year growth in the latest quarter was 3.8 per cent, well down on the OBR forecast of 6.7 per cent.

But for me, the killer is the picture for household spending. This accounts for more than 60 per cent of GDP (measured by expenditure) and it is here that the data most clearly show a double dip:

This looks pretty terrible: household spending is plummeting, business investment is disappointing and the government is doing its best to cut government expenditure. (Oh, and by the way, look at the table, trade isn’t about to save our bacon.)

Quantative Easing will have to work pretty damn quickly or a double-dip recession looks very likely.

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About the author
Richard is an regular contributor. He is the TUC’s Senior Policy Officer covering social security, tax credits and labour market issues.
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Reader comments


Yeah, well we’ve been saying that this is the only realistic outcome of current government economic strategy for the last 18 months.

The fact the Euozone crisis has come along only cemented this view. It did not change the direction of travel, as Osborne and his blinkered cheerleaders likes to claim.

We were always going to hit the wall. We’re just doing it faster, that’s all.

BenM,

Yeah, well we’ve been saying that this is the only realistic outcome of current government economic strategy for the last 18 months.

Which differs from the government economic strategy of the preceeding 18 months (or whatever period) how exactly? In minor respects only – reducing the speed of spending.

And Richard’s analysis of the impact of government spending seems to forget that the money has to come from somewhere – which is the key problem here. The economy is being slowed down as much by debt as by anything else.

No. We’re headed, this time, for a *depression*. The government has effectively loaded the economic dice, and sat on the accelerator…

The debt is due to the bankers. Ed Balls believed all that guff that we could rely on self-regulation by the bankers.

In 2007 before the financial crisis broke, general government expenditure as a percentage of national GDP was almost the same as for Germany and less than that of Denmark, Sweden, the Netherlands, France etc

5. Leon Wolfson

@5 – And the Tories called for an even lighter touch on bankers. Your point?

Not nearly enough tax revenues to pay down the budget deficit?

Try this news report:

The extent to which FTSE 100 companies use tax havens for their operations is revealed in a database of their subsidiaries compiled for the first time by the development charity ActionAid.
http://www.guardian.co.uk/business/2011/oct/11/ftse-100-subsidiaries-tax-havens?newsfeed=true

“Which differs from the government economic strategy of the preceeding 18 months (or whatever period) how exactly?”

How it differs or not is irrelevant. This government is meant to be stopping the shit happening that supposedly would have happened under Labour. They’re currently failing in the main job that voters swung to the Tories for in the first place.

8. William Smart

We’ve seen nothing yet – the problem is personal debt and it won’t go away until most of that indebtedness is paid off. Years of austerity for sections of the population mean years of sluggishness for all of us.

Printing money (“increasing M0”) as we’re doing now won’t solve that problem, nothing will, except to cancel large swathes of borrowing that bankers should never have extended. Unless we do that, we’ll not get back to where we were.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    Why a second recession is now more likely than not http://t.co/FnoLgUg0

  2. Tony Dowling

    Why a second recession is now more likely than not http://t.co/FnoLgUg0

  3. Richard Brooks

    @libcon on how a double dip recession is actually quite like. Do not read if you were previously having a good day. http://t.co/cYYZJgxu

  4. Robert CP

    Why a second recession is now more likely than not http://t.co/FnoLgUg0

  5. TheCreativeCrip

    We've been in a recession full stop!! RT @libcon: Why a second recession is now more likely than not http://t.co/AS3JZptg

  6. sunny hundal

    Why a second recession is now more likely than not http://t.co/gzEEShVi

  7. Leon Paternoster

    Well here's an irony: GDP is only being held up by government spending: http://t.co/QryussFV

  8. Toni Fernandes

    Why a second recession is now more likely than not http://t.co/gzEEShVi

  9. Soho Politico

    RT @sunny_hundal: Why a 2nd recession now more likely than not http://t.co/dSiU89FS <In other news, Tories guilty of talking down economy.

  10. Levin Wheller

    Why a second recession is now more likely than not http://t.co/gzEEShVi

  11. Sarah Harris

    “@sunny_hundal: Why a second recession is now more likely than not http://t.co/ZxmGc3az” > miserable 🙁

  12. Alex Braithwaite

    Why a second recession is now more likely than not | Liberal Conspiracy http://t.co/VnOzDVJh via @libcon

  13. Dominic Ellison

    Why a second recession is now more likely than not http://t.co/ukaF8LO2





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