Recovery in rehab
- 25 January 2012
- From the section Business
Perhaps we should think of another word for it. In two and half years of "recovery", the UK economy has recovered only 45% of the output lost during the recession.
If today's GDP figures are right, we didn't recover any output at all in the fourth quarter of 2011 - we lost about £750m's worth (give or take).
The broad message is the same, even if it is a slightly larger contraction than expected. The UK economy is flat. But that's enough bad news to be getting on with, 10 quarters after the steepest recession of our life time is supposed to have ended.
In the production industries, which helped drive the fourth quarter figures downward, output is now 2.6% lower than it was at the end of 2010.
The folk at Capital Economics have started to use another word for it: Recession.
In their response to today's figures, they say: "Our bet is that the UK is now back in recession and that the economy will continue to contract for most of this year".
The Centre for Economics and Business Research has this: "Today's data suggest that the UK is probably in the midst of a double-dip recession and we expect the economic picture in 2012 to remain gloomy".
Others are not sure that this is the start of a serious double-dip, but it's a reflection of our uncertain times that no-one can exactly rule it out.
We have this, for example, from Chris Williamson at Markit: "While the UK clearly faces a clear risk of sliding back into another recession, which is commonly defined as two consecutive quarter of declining GDP, there are growing indications that any downturn is likely to be mild and short-lived".
We do know that this figure is likely to be revised - one way or another - and that recently, the average revision to this first estimate for GDP has been creeping up.
According to today's release, the average absolute revision over the past five years has been plus or minus 0.27 percentage points. At the start of the recovery, in the autumn of 2010, that same five year average stood at 0.19 percentage points. Going further back - to 1998 - Mr Williamson claims the average revision has been 0.5 percentage points, up or down.
It's always been harder for the statisticians to get things right when the economy is "on the turn". History suggests they tend to underestimate the fall in output going into a recession, and underestimate the rise when we're coming out.
The problem for us now is precisely that we don't know which category we fall into: Are we still climbing uncertainly out of the 2008-9 recession, or heading for a new one?
There are tentative signs for hope. The main PMI business surveys were very flat for most of the fourth quarter, but then picked up significantly in December. The trade figures haven't been too bad, either (surprisingly so, given events in the eurozone).
For all the dark warnings from the IMF yesterday, there is a growing feeling that the eurozone crisis may have moved into a new phase. It's still chronic, on this view, but not life-threatening. This is the feeling I identified, somewhat to my surprise, in the days after that disappointing leaders Summit in early December.
Thanks to the European Central Bank and its support for Europe's banks (and, indirectly, its governments) that mood of cautious optimism has since been slowly taking hold in the financial markets. It's not that anyone thinks the crisis is over, merely that, from a global standpoint, it might just be contained - at least for a while.
We shall see. But clearly, what happens to the eurozone will have an enormous impact of whether the UK is more or less on the road to recovery for most of 2012, or continues to slide backwards.
Interestingly, the minutes of the January meeting of the Monetary Policy Committee (MPC) show the Committee still not unanimous in supporting more central bank action - quantitative easing - to support demand. But the governor seemed to suggest clearly in his speech last night that he was in favour. If a majority of the MPC weren't persuaded before, I suspect these GDP figures - and the continued fall in inflation - will do the job.