It's economic growth, but not as we know it

  • 1 November 2011
  • From the section Business
  • comments
Media captionThe Chancellor, George Osborne, said the figures were an important step forward

Some growth is better than none. That's the general mood in response to today's first estimate of GDP, which is better than many expected.

But some of that growth is making up for the losses in the second quarter from the royal wedding bank holiday and other one-offs. And even 0.5% is still well below what we might have hoped for, at what would be usually a fairly mature stage of recovery.

Alas, mature, or self-sustaining, are not yet words that anyone would use to describe this recovery. In fact, many city analysts are suggesting that this third quarter figure might be the best we get for a while.

The October PMI survey of purchasing managers in manufacturing, out today, showed the largest monthly fall in output since June 2009; and across the Channel, the news about the real economy has not been very encouraging.

The OECD warned yesterday that the eurozone economies would barely grow at all in the next year - and there was a strong chance of them dipping into recession around the turn of the year.

Here's a little history lesson to put today's numbers in perspective.

Since the 1950s, our economy has grown by around 0.6% every quarter. So, if we hadn't had a recession, we could expect the economy to have grown by more than 10% since the first quarter of 2008.

Instead, our national output - in real terms - is still nearly 4%smaller than it was then. And that is after nine quarters of "recovery".

Today's figures suggest that output on the services side of the economy is now 1.8% lower than at the start of 2008.

Manufacturing and construction have much more ground still to make up: manufacturing output is 7.2% lower than it was at the start of the downturn; construction output is down by 10.7%.

As I have written in the past, there's an important debate now raging among economists about how much of the output lost since 2007 will ever be made up.

Trough

Yesterday, I interviewed Bill Martin, the economist who has made the most cogent case for being more optimistic about our potential growth rate - and for government efforts to achieve that faster growth.

As luck would have it, I am about to interview another thinker on his side of the debate, Adam Posen.

He is the US economist and member of the Monetary Policy Committee who has argued most strongly for Bank of England and government efforts to speed the pace of growth. (Credit easing is one variant that the Chancellor is planning to run with.)

I'll let you know how I get on. In the meantime, it's worth saying that even people who are gloomy about our long-term chances of getting back all we have lost would admit that we could be growing faster than we are.

The average growth rate, in the early period of a recovery, is usually significantly higher than 0.6% per quarter.

At this stage in the mid-1990s recovery, for example, we had averaged 0.9% growth each quarter since the end of the recession.

This time, the average quarterly growth rate since the trough of the recession has been 0.35%.