Tuesday, 9 April 2013

Recessions and recoveries: a historical perspective (updated April 9, 2013)

Here is NIESR's chart showing the path of recession and recovery in various previous downturns, updated for our estimate of monthly GDP, published April 9, 2013.  






Our monthly estimates of GDP suggest that output rose by 0.1 per cent in the three months ending in March, after a rise of 0.1 per cent in the three months ending in February 2013.  While this suggests that the economy did not fall back into recession, it implies that the economy continued to stagnate in the first quarter of this year.   

Over a longer perspective, this represents the slowest post-recession recovery in output in the past one hundred years; the economy was only ½ per cent larger in the first quarter of 2012 as it was in the third quarter of 2010. Indeed, per capita GDP - the simplest measure of the UK's overall economic prosperity - actually fell over this period; we do not expect it to regain its pre-recession peak until approximately 2018. 

Looking forward, the focus should be on whether stagnation persists throughout 2013.  
NIESR’s latest quarterly forecast (published 5th February 2013) projects growth of 0.7 per cent per annum this year and 1.5 per cent in 2014.  More detail on NIESR's latest quarterly forecast for the UK economy, published February 4, is here.  Our comment on the 2013 Budget, and the OBR forecast, is here.  


26 comments:

  1. Ass far as the private domestic sector is concerned, the economy will remain in depression for as long as the government continues to act with pro-cyclical fiscal policy - by not filling the output gap with government net spending.

    Exports won't save us either for two reasons:

    a) many of our trading partners are not filling their output gaps either.

    b) many exporters also rely on sales to the private domestic sector too.

    With austerity at home and abroad, some exporters are alikely to become insolvent as well.

    Kind Regards

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    1. Its just a pity the last government didn't leave anything on the tank for them to do that!

      Labour seemed to forget Keynes theories during the growth years when they meant they should be running a surplus. Instead they increased the deficit and spent money based on inflated debt fuelled tax revenues.

      The Government is sorting out the mess with one hand tied behind their back.

      "there's no money left"

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    2. "Its just a pity the last government didn't leave anything on the tank for them to do that!"

      Depends what you mean by "tank". If the tank holds a stock of debt, then the tank had more capacity for debt by 2008 than was handed over in 1997 - as debt to GDP was lower on the cusp of the financial crisis.

      What followed to 2010 was Keynesian counter-cyclical deficit spending, which of course increases the stock of debt.

      However, what can be seen from the graph above is right about 30 months ago that recovery stalled.

      And the reason it stalled is because George Osborne implemented his hysterical Austerity strategy leading to zero growth in 2 years.

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    3. No doubt the previous government was guilty of massive economic mismanagement - particularly in terms of lax bank regulation and a largely credit fuelled boom. But as TheMurf indicates (above), the focus now should not simply be on the past and attributing blame(though analysing and understanding the origins and nature of the existing problem is crucial), as how far back in time might the blame extend?
      Rather than pointing the finger of blame, the focus of discussions should be on the ongoing POLICY RESPONSE to the problem - ie. this government's austerity policy. Careful scrutiny of independant data (ONS, IMF, OECD etc) all clearly illustrate that austerity has not only failed to aid economy recovery, but has massively damaged the economy in both the short-term and the long-term; proving to be self-defeating in terms of achieving the government's over-riding aim of reducing the budget deficit, due to its depressing effects on AD and the economy in general, as Charles (above) concisely describes.
      To further confirm this view, recent, preliminary data on service sector output for Q4 does not look promising for overall quarterly GDP, so there appears the real possibility of Osborne & Cameron presiding over an unprecedented triple - dip recession, and yet more unnecessary economic and financial suffering for a great many people and businesses in the UK. Will the actual results of their policies cause any self-reflection and critical analysis of whether austerity has worked or will work, resulting in significant policy revisions? Unfortunately with this lot I very much doubt it, not even if UK GDP remained below pre-crisis peak for double the length of the Great Depression.

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  2. By many measures, the UK entered a depression after World War I and never recovered before the World War II. Yes, the UK spent the entire inter-war period in a depression.

    Because of this, the graph in the post is profoundly misleading. The author picks some unimportant blip (year 1930) in the middle of the two decade depression and calls it the starting point of the depression, whereas the true starting point of the UK depression was around 1919.

    Surely the author of this blog understands this by now and therefore I am forced to conclude that he is intentionally attempting mislead his readers.

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    1. Why don't you just ask the blogger to explain his choice of data points? Why are you "...forced to conclude that he is intentionally attempting to mislead his readers." based on a disagreement on where the data should start? Why are there so many "gotcha" folks out looking for a fight rather than a discussion?

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    2. of course the man intends to mislead his readers, he has even said that he has political views in a treasury select committee hearing.

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    3. This comment has been removed by the author.

      Delete
    4. What he actually said was that he does have political views (doesn't everyone?), but he clearly explained that in his capacity as director of NIESR those views are left aside and a professional, independent 'hat' is worn. Follow Captain Fractal's advice before resorting to unfounded,unproven accusations.

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  3. At a debate about the future of the UK, I asked government member, Jo Johnson, MP, brother of London Mayor Boris, if Britain could be a number one economy again. He said no, because the UK only has a population of around 60 million. This doesn't make sense to me, as Australia only has a population of around 23 million, and yet the IMF recently predicted that Australia would be the best performing major advanced economy in the world over the next two years. Why not the UK?

    To see the YouTube video of my question and Mr Johnson's reply go to:

    http://youtu.be/IpvOOqMd6Ww (55 seconds)

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    1. Because Australia is a huge, resource rich, country, whose main trading partner has the ability and the will to stoke demand on the first sign of trouble (China) they also started the great recession with considerably higher interest rates so they haven’t bumped into the zero lower bound as yet. Yes the population argument is frivolous and to be honest that just highlights the appalling level of debate within the political class. Although as always it depends on how you measure these things I'm guessing he's talking about aggregate GDP rather than GDP per capita in which case obviously a country with a huge population and reasonable productivity is going to have a higher number than say Iceland or Latvia.

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    2. Jo Johnson answered one question and you seem to think he should have answered another. This confusion was your fault, because the question you asked was hopelessly imprecise. What does it mean to be a "number 1" economy? I can give at least 20 definitions.

      Jo Johnson thought you meant: would the UK be the biggest economy again? His answer, correctly, was: no, it could not, because the country is too small. You apparently thought your question meant: could the UK be the best-performing major advanced country? If that is what you wanted to know, that is the question you should have asked. But the UK clearly cannot be Australia, which is, economically, a resource-providing offshore province of China with a small population.

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  4. What does this chart look like for indicators such as GDP/capita, median income or youth employment-youth population ratio? I imagine similarly depressing, if not more so.

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    1. Dear Mr Wolf,

      A good comment. But please concentrate your righteous wrath on those who are condemning a generation to unemployment and low incomes. That's not just economically inefficient , it's immoral.

      Delete
    2. Dear Mr Wolf,

      A good comment. But please concentrate your righteous wrath on those who are condemning a generation to unemployment and low incomes. That's not just economically inefficient , it's immoral.

      Delete
  5. As a matter of interest what is the margin of error on these estimates? And why are they not more widely reported?

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  6. Hang on, does this mean we are in a Depression now? That would be I would venture to say rather bad news. When I think of an economic depression, I'd be more likely to think about Greece or Spain. Whilst we would not want to understate the problems in the UK economy, we are in substantially better shape then the Greeks or the Spanish.
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  7. Fed subsidizing low interest rates on federal debt? Silly argument.

    http://socialmacro.blogspot.com/2012/08/fed-subsidizing-low-interest-rates-on.html

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  8. 'Just as talk about a "double-dip recession" after the unusually bad second quarter growth figures was overdone, so was the euphoria about Britain "surging out of recession" after the third quarter figures. '
    well, er the double dip prediction after Q2 numbers for now is wrong. As for q3 numbers we don't know. So I don't know;
    1) which euphoria you are referring to, and
    2) how you can know we won't get another period of growth.

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  9. From a (mostly) layman's perspective, I'd like to know what is keeping the exchange rate so high. The company I work at (we make electronic controllers to order) benefited enormously from the drop in exchange rate in the year following the crisis as local companies thought twice about taking their business to India and China. Can that be replicated? If not, why not?

    I suppose it has something to do with the tight supply of money from the BoE?

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  10. the graph clearly shows that in virtually every recession the UK economy has returned to pre recession levels of GDP no later than 50 months after the dip

    what then is the reason for the continuing flat lining in this recession? And is there in fact a substantial finite probability that the graph will take a turn downwards again?

    Certain, rather pessimistic, commentators have predicted recently that there will be a significant devaluation due to artificially low interest rates and other factors. Could they be right? Instead of the paltry 1% GDP growth predicted here and in other places, is there a significant risk of further contraction?

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    1. A very very high chance of further contraction if Cameron/ Osborne and their policies remain in force unfortunately.

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    2. I agree Simon, apols for not replying sooner

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  11. What's the margin of error on that 0.1% figure?

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  13. Its just a pity the last government didn't leave anything on the tank for them to do that!
    Glyn Willmoth

    ReplyDelete