Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Economic recovery to remain slow in Q2

by
23rd Jul 2009
Save content
Have you found this content useful? Use the button above to save it to your profile.

Business economist Dr Dominic Swords shares his predictions ahead of the government’s release of Q2 GDP figures this Friday.

Following the recent downgrade of Q1 growth from -1.9%, to -2.4%, many people want to know whether there will be signs of the recession coming to an end or whether we are continuing in a downward spiral.

In truth, Friday’s data is likely to be inconclusive with regards to how rapidly the economy will recover, how strong the next phase of growth will be when it arrives and whether any improvement will be sustained. However, it will shed some light on the question of whether we have arrived at a turning point in the economic cycle.

Consensus forecasts over the last month have softened slightly and a fall in GDP of around 4.0% is expected by the year end (the median of the Forecast of Forecasts published this month by the Treasury is -4.0% with a low of -4.4% and a high of -3.1%. This is compared with the Treasury’s own forecast range of -3.75% to -3.25% for the year.*)

It is highly unlikely that the economy has recovered into positive growth in the latest quarter. The critical issue will be whether it has continued the dramatic plunge seen over the last four quarters or whether the decline in the rate of decline seen last quarter has gathered any pace. Indeed, there is the potential for the rate of decline to have gone into reverse and gone positive to deliver a much stronger outcome for the year than many suggest.

In the short term over the rest of this year, there is growing evidence that the economy will achieve some mild expansion that may create a foundation for further growth in 2010. However, there are many other factors that may put this outcome at risk. One of the most critical is confidence. At present, both business and consumer confidence remain fragile and uncertainty is high.

When analysing the data released on Friday, we should be careful to avoid a self fulfilling prophesy that any suggestion of a turnaround in performance is weak and a preface to a double dip recession. Instead, we should let the figures say what they say.

* Source:HM Treasury

Dr Dominic Swords is a business economist at Henley Business School
 

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.