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Saturday, May 11, 2013

There was no double dip recession after all?

One of the problems with a 24/7 media is that they are quick to rush to judgement before all the facts are at their disposal, just to get the headline. For example, when the quarterly figures on the economy are published they only contain about 40% of the necessary statistics, making it difficult to draw reliable conclusions. That does not stop politicians and journalists rushing to judgement however, and very rarely, if at all, do we see caveats associated with their pronouncements.

That is the background to this article in the Telegraph that reveals that claims of a double dip recession may have been premature and, in fact it is likely that it did not happen at all.

A recession is defined as two consecutive quarters of negative growth. Thus in the first three months of 2012, after it was revealed that the economy shrank by 0.1pc it was decided that we had indeed reached that nadir. However, the paper reveals that the latest estimates of construction activity for the first quarter of 2012 suggest the economy only flatlined. As a result, there may never have been a technical double dip at all.

The Office of National Statistics has now estimated that construction in the first quarter of 2012 contracted by 5pc, not 5.4pc, and that output in the sector was £108m more than previously thought at £25.273bn, a tiny amount that makes all the difference symbolically.

The Telegraph adds that Simon Ward, Henderson’s chief economist, has calculated that the revision means the economy shrank by 0.04pc in the quarter rather than 0.07pc, all else being equal. When this is rounded to the statistical norm, the change means the economy stagnated at 0.0pc rather than shrank 0.1pc. However, confirmation will not come until June, when the ONS officially reviews past estimates, and any change to past calculations of services or industrial production could yet offset the gains made by construction:

Philip Shaw, UK economist at Investec, said: “As things stand, the revisions to the construction data mean that the UK didn’t double dip over the back end of 2011 and beginning of 2012.

“That’s pretty interesting considering there were fears of a triple dip just a few weeks ago. If markets are concerned about the technicalities of a single dip, double dip, or triple dip, this is a relevant point. But in the broader scheme of things, the economy is still subdued and looks like it will take some time to reach escape velocity.

Although these figures are not good by any stretch of the imagination, the disappearance of symbolic double dip will give George Osborne a bit of breathing space. This is especially so with Nida Ali, the economic adviser to the Ernst & Young ITEM Club, commenting that there are “signs of an initial recovery in UK trade [and] evidence that the much-needed rebalancing of UK exports towards faster growing nations is continuing”.
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