Friday, 26 October 2012

We're out of recession, whoo hoo!

Yesterday the Office for National Statistics published its first tentative measure of the last quarter's GDP growth (ie July, August, September) and in this Olympic and Jubilee time it found that the economy had grown by a massive one percent!

The GDP numbers for the three preceding quarters were -0.2%, -0.2% and -0.7%, so this latest number almost wipes out the previous falls. We are almost positive on the year to date.

This means we are no longer in recession. Strangely although economists deem the economy to be in recession when we get two consecutive quarters of negative growth they deem us to be out of the woods when they see a single quarter of positive growth. And they certainly do not include a couple of very important factors.

First, there's the debt growth. A one percent GDP increase amounts to the economy growing by about 14 billion pounds. But over the same period the government  has borrowed about thirty billion pounds and injected it into the economy. And it borrowed the same in the previous recessionary quarters. You cannot reasonably call yourself richer if your debts have gone up by twice your assets. Duh!

Second, there is population growth. Despite the government's pledges we still have a net inward migration of about a hundred thousand people a year. So the cake may have gotten bigger, but your slice got smaller. Total GDP is of far less interest than per-capita GDP - that's the stat which actually makes you feel richer or poorer.

Once we see GDP growing faster than the debt, and inward migration stopped or reversed, then we are really out of recession, and not until. (By the way, the last year that actually happened was 2002!)

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