25 Jul 2013

0.6% GDP Growth in Context

The Q1 2013 GDP figures are out. 0.6% growth would probably have been seen quite favourably in the pre-2008 world.

But it doesn't make up any lost ground. It's about average and doesn't therefore constitute a recovery. The red line shows quarterly GDP seasonally adjusted from 1955-2007. The dotted red trend line is a shallow exponential curve with an R2 of 0.9927 (and extended out 20 quarters from the end of 2007).

Click image to embiggen

Had growth continued on the trend of those 52 years then we'd expect GDP in this quarter to be ca. £415 billion. What we have is GDP of ca. £365 billion. A shortfall of £50 billion this quarter. This means we're about 12% below the GDP we'd expect given the 50 year trend. And note that the dotted red and solid blue lines are still diverging which means that we are still drifting away from the long term trend of GDP growth.

We are not making up the shortfall and the shortfall is increasing. Until we turn this around and start to move back towards the trend we have two options:
  1. Shut up about 'recovery'. 
  2. Redefine the long term trend to be roughly zero growth.
Since the government are crowing about 0.6% growth we can probably assume that they have abandoned the idea of recouping our losses, and have accepted that the lost income of the last 5 years is not recoverable. The UK economy has simply lost 12% of it's value (so far) and is continuing on a new trend of flat growth.

The dotted blue line is a linear regression of the figures from 2010-2013 - since the recession officially ended.

Click image to embiggen

Interesting if you draw a straight line through 2010-2013 the line does indeed slope up and gets to the same level as Q1 2008 (£375 bn) in about 2018. So the people who were predicting 10 years of depression 2 or 3 years ago seem to be about tight. At that point the long term trend line predicts GDP of £475 bn. So we will be 21% below trend and counting.

GDP growth was 0.6% in Q1 2013. But from 2011 to 2013 it was only 0.06%

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Keep is seemly & on-topic. Thanks.