Monday 1 July 2019

Will growth fall to 0%?

The quarter is over and the results are eagerly awaited. There is not much to be gained in the round by overly focusing on GDP numbers - the statistics are so variable that revisions can do things like erase recessions a few months later (as happened in 2011).

Indeed, just this last weekend the statisticians decided that the UK economy was £32 billion bigger than they previously estimated. This is small when considering the UK but £32 billion is a lot of money - but of course is about the size on one of the Baltic States entire economies or rather closer to home only slightly smaller than that of Northern Ireland which is around £40 billion.

But statistics have their uses as a guide to the general direction of things and one thing that does happen over time series is that they do track into and our of recessions. So this month should be interesting because Q1 of 2019 was 0.5% growth which is really quite good for the UK economy.

However, there was a lot of stockpiling ahead of the non-Brexit of 29th March and so this may have brought forward some corporate and other spending. As such Q2 will be weaker almost as a given, but will it drop to 0%. One really bad aspect of Brexit is the uncertainty, even a hard Brexit does at least end the uncertainty which is causing businesses to under-invest. Although Foreign Direct Investment is holding up well, it is also dropping off from its very high level.

Investment is crucial to the UK economy, without it we continue to move towards a low-pay, low added value model more akin to Southern Europe than US or Germany. The Government can only invest so much with a high public debt already, so we need the private sector investment.

Overall, I think growth will slow to 0% or near 0% in Q2 of 2019. With Brexit likely not until Q4 at the earliest, investment will remain weak and so Q3 over the summer could also be slow, hoping that renewed stockpiling could see a winter run up in GDP - overall though from here it seems hard to predict GDP growth above 1% for 2019 which is a very poor out-turn for the current rude health of the world economy.


david morris said...

A headline figure may be good for headlines, but when so many of these GDP figures are subsequently adjusted - some quite significantly - how can they be considered a reliable indicator ?

CityUnslicker said...

I really wanted someone to cotton on to my 0% growth headline. One of Gordon Brown's best quotes at PMQ's - we have seen 0% growth - thinking that was an achievement to boast about - let alone the grammatical howler!

David - they are a good indicator of trends quarter by quarter when you look historically - the details as you say are often specious individually.

andrew said...

Reliability of indicators .. Good question.

With the benefit of no evidence i suspect that gnp rpi etc etc are not accurate and have never been.
I suspect that as things have changed recently (teh internet) they are more innacurate than they used to be.
However if you look at them over a long period of time i suspect the errors start to cancel / average out.

We need good quality stats to support our complex economies but once you know rpi is 2%, it is clear that rpi for a child who buys chocolate is not 2%, neither is it 2% for someone who just bought a house (a lot more than 2), or a pensioner (negative if you are over 90)

So these things are roughly accurate but precisely wrong.

This illustrates the folly of overly strong central management (or govt). They tend to look at the averaged indicator rather then he ground truth as experienced by each business unit.

Moving on to 0%

On a no deal brexit i expect complete carnage due to the momentum effects of trade

Shiney said...


"We need good quality stats to support our complex economies"

Why? It just means the buggers will try to interfere - we should take the lesson of Sir John Cowperthwaite and abolish the ONS.

Sebastian Weetabix said...

FWIW the highly cyclical electronics assembly industry is contracting. Gut feel from the materials supplier POV (me!) is that it hasn't contracted this quickly since 2008. Even automotive electronics (think of all the safety systems & autonomous crap which goes into cars these days) is declining.

The teenage thirty-something former GS wunderkind who is nominally in charge of our business is frantically shitting himself, never having experienced an actual downturn in the 5 minutes since he left nursery school. I on the other hand have paid off the mortgage since last time round & I'm comfortably descending into retirement, so take a more detached view.