UK back in recession

We're in a weaker position than during the Great Depression

Figures out yesterday show that the UK economy went backwards in the first quarter of 2012.  The preliminary estimate of GDP from the Office for National Statistics states that GDP fell 0.2%.  Few forecasters expected this.  The fall is driven primarily - but not exclusively - by the construction sector so could be revised up later.  Nevertheless, it is a sobering statistic.

Even more sobering is this chart, taken from ONS data in its Economic Review this month.  The ONS notes that: “The stuttering nature of growth following the recession means that the economy is weaker relative to its pre-recession peak than at the corresponding stage of the depression in the early 1930s. It is also well below where it would have been if it had followed the path of either of the recessions in the early 1980s and early 1990s.”

GDP now and Depression

That is what happens when we have a government committed to 'austerity' but not in practice to growth.

Stephen Beer, 26/04/2012

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Democracy and the Eurozone crisis

Austerity without hope is not popular.  The first round result of the French presidential election appears to show that. The Greek elections may send the same message.  Meanwhile, the Dutch government has fallen because it cannot get its budget through.  In other news, Spain is back in recession.

The Eurozone governments have committed themselves to austerity death spirals as they cut spending which in turn hits growth, which in turn leads to calls for more austerity as tax revenues come in lower than hoped for.  At some point, voters feel that power has been taken away from them and take it back.  If mainstream parties abdicate responsibility for promoting growth, they should not be surprised if the electorate sends them a message.

Radical action is required to restore the Eurozone to health but it may still yet take further upheavals before a new consensus develops.  It will be better if political leadership is exercised.

Stephen Beer, 23/04/2012

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