What are the implications of this? The most important is the impact on confidence. Consumer and business confidence is incredibly low and this will do it no good at all. We can expect people to save more and firms to hold back on investment. This is going to reduce the rise in AD over the coming months and that will hamper recovery.
An important question about the data has to be asked however. The definition of a recession as 'two quarters of falling GDP' is not a technical one. It was coined by the semi-technical press and has now passed into the literature as if it is true. Actually it is at best a guide in order to point out that a single quarter of falling GDP is not a trend. So is this definition accurate?
Actually a better definition of a recession is six months of continuously falling GDP. That is GDP falls in each month of the six. The problem of ONS data is that it is based on calender quarters, January to March, April to June etc. But this means it is quite possible for two bad months, say December and January, to make GDP appear to fall in two quarters, while in fact there was growth in four and the current trend is still for growth.
In this case it is not at all clear that there is a recession, and it is not even certain that the Jan to March figure won't be revised back to very low growth. In addition a recession usually is accompanied by rising unemployment, and yet the latest figures show falling unemployment.
What is clear is that the news alone is potentially damaging, especially as the idiot Balls will cynically exploit figures he knows to be exceptionally dodgy and encourage the very behaviour that will further damage the recovery.
The press shouldn't cause a big scare by claiming the UK is in a recession. As you said this will only have a diminishing effect on consumer and business confidence causing a slower recovery. The UK might well have had two consecutive quarters of growth but the 2 add up to -5% which is the same amount the UK economy contracted by in the last quarter of 2010 after which there was growth so recession wasn't declared.
ReplyDelete0.5% not 5% andea
ReplyDeleteIf we go back to the 3rd quarter of 2011 the we have still grown, as this -0.5% is less then the total growth in 2011Q3. The information shows growth trends, so a -0.2% GDP growth in Q2 means we could still be growing just slower than in Q1 etc. (based on an article in the economist)