We will know on Friday whether UK GDP shrank again in the last quarter of last year. Even if it did, as many expect – Capital Economics is predicting a contraction of 0.4 per cent, the NIESR of 0.3 per cent – we still won’t be in a proper triple-dip as two consecutive quarters of shrinking GDP are required to constitute a recession. But it will still be awful news.
It will also cast doubt on whether we ever exited recession: perhaps the growth and contraction quarters are all still part of the recession phase of the cycle. It remains highly likely that official statistics will be massively revised in a few years’ time – but we also have plenty of business surveys that confirm that Britain remains mired in a state of abject weakness and hence belongs to the most troubled category of countries.
The UK isn’t the only nation that is failing to extricate itself from recession – but plenty of others have managed, and many are doing very well indeed, so that is no excuse. There are three groups of countries, one that is going into reverse, the other moving in the right direction and the third racing ahead. Several top economies – Japan, a large chunk of the Eurozone including most of Southern Europe, and presumably the UK – are in recession. Others – parts of Northern Europe, America, Canada, and Brazil – are expanding slowly, a group which the UK should have been able to graduate to by now. A third bunch made up primarily of emerging economies is continuing to roar ahead, albeit not as quickly as they did in 2010 or 2011.
Figures from Global Insight show that after shrinking by 1.9 per cent in 2009, the world economy bounced back by 4.2 per cent in 2010, 3 per cent in 2011 and 2.6 per cent last year, an achievement given much slower growth in China, which expanded by “just” 7.8 per cent if the statistics are to be believed. World GDP is expected to expand by 2.5 per cent this year.
The received wisdom among most City economists, which is partly right and partly wrong, as ever, is that America appears to have kicked the can of fiscal collapse far enough down the road so as to make for a calmer 2013 (probably right, though the next flashpoint will be in April), investors have become more sanguine about the Eurozone crisis (in my view, wrongly, given still appalling GDP and jobs figures), and China has escaped a hard landing (but only by blowing yet more bubbles, which is what the consensus economists often forget). Unless some major crisis erupts, and what is happening in Algeria and Mali appears to be too minor to trigger a full-blown catastrophe, most economists believe that the global economy will progressively accelerate as the year progresses.
But several big risks are always downplayed. Here are just three. There is once again a disconnect between the Eurozone’s hard economic data, which remains terrible, and global investors’ improved perception of the region. At some point, the bubble in many Western government bonds will burst; there are some indications that at least a partial readjustment may already be under way. Last but not least, at some stage quantitative easing will end for good and a UK economy addicted to central bank intervention will have to attempt to stand on its own two feet. That will be painful, to say the least. When economists begin to relax, it is always time to start to worry.
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