When the Government released its preliminary figures on third-quarter GDP, proclaiming a 0.4% contraction, lots of economists were taken by surprise – many had been expecting a return to growth, and some even suggested that the figure must be too low. Turns out they were right, but not by much: the revised GDP figure issued by the Office for National Statistics today shows a 0.3% contraction instead. So the economy was still in recession last quarter, just not quite as bad a recession as first thought. And since Government stimulus money (e.g. the car scrappage scheme) is still propping up this figure, it doesn’t exactly point to a burgeoning economic recovery…
According to today’s figures, the declines in the manufacturing and service sectors weren’t quite as bad as first feared (0.1% rather than 0.2%, in both cases), but production actually fared worse, because energy companies were pumping less oil and gas out of the ground. The ONS said household expenditure was pretty flat from the previous quarter, but it’s worth remembering that this is probably a result of the various Government initiatives to prompt us to spend money. The scrappage scheme is an obvious example – however dubious some may find it in principle, it’s clearly had a beneficial effect on car sales.
The problem is, of course, that temporary schemes like these don’t necessarily persuade people to make purchases they wouldn’t otherwise have made; they just make them earlier. So it’s possible that when the stimulus measures are removed, spending could fall again – or at least, its growth is likely to be as sluggish as a 10-year-old gas-guzzler on a very steep hill. The pundits still seem to think it quite likely that we’ll move out of recession in the last three months of 2009 (albeit long after all the other big economies), but generally speaking these stats don’t point to a rapid improvement. The only plus point was that companies have continued to run down stocks, which should mean lots of new orders when (/if?) business picks up.
This might not be the last we hear on the fascinating subject of third-quarter GDP: the ONS will publish more detailed stats next month, at which point we might see another revision. But just in case you were labouring under the misapprehension that these figures are little more than guesswork, the pointy-heads at the ONS were quick to defend the reliability of their data today, pointing out that the average difference between the initial estimate and the final number was about 0.05%. Although presumably that’s in ordinary circumstances: we suspect the calculation gets a lot more complicated when the Government is pumping in money left, right and centre.
In today's bulletin:
Supreme Court backs banks in overdraft charges row
Hurrah! Recession not (quite) as bad as thought
Red-faced Tesco feels the pain of the business cycle
Bridging the gender divide in the workplace
A Life of Enterprise: A love game