Today’s figures from the Office for National Statistics (ONS) confirm that GDP fell by 0.3% in the fourth quarter of 2012. However small upward revisions to Q1 and Q3 have raised overall growth in 2012 from 0.0% to a modest 0.3%.
Whilst the upward revision is obviously good news, there is no disguising the fact that these are disastrous figures.
The detailed breakdown of the components of growth is especially concerning. Household consumption was weak in the fourth quarter, investment spending fell and the net trade gap widened further.
It is instructive to look back at the OBR’s original estimates (from June 2010 at the time of the Chancellor’s first budget) for 2012. 2012 was supposed to be a year of booming recovery with growth of 2.8% – some nine times faster than what we actually got.
Business investment was meant to zoom ahead by 10.0%, whilst in reality was stagnant with growth of just 0.4%.
Partially these large misses to the OBR forecasts can be explained by a global commodity price shock in 2011 and partially by the impact of the Eurozone crisis; but a major part of the miss can only be explained by the OBR getting its estimates of the fiscal multipliers very wrong indeed.
And yet despite the huge shortfall in expected growth the government is sticking to fiscal plans premised on a booming recovery.
The prospects for a strong recovery now loom bleak – as the squeeze in living standards is holding back consumption growth, the Eurocrisis is hitting exports, business remains loath to invest in such an environment and the government itself is taking demand out of the economy.
Three years ago George Osborne made a major speech setting out his ‘new economic model’. He set out what he called “benchmarks against which we can be held accountable”. The key benchmarks being the retention of the AAA rating and growth based on rising investment and exports.
The results of the grand austerity experiment can now be judged – a stagnant economy, a lost credit rating, no real rebalancing, a large fall in living standards and fiscal targets that have been missed.