Economy to continue flatlining this year

The graph below, produce by Canadian-based bank Scotiabank, shows the evolving nature of GDP forecasts as applied to the UK economy. As we can see, this is the third consecutive year where the consensus for growth has started out at around 2 per cent before gradually being pushed down towards zero as time has passed.

The graph below, produce by Canadian-based bank Scotiabank, shows the evolving nature of GDP forecasts as applied to the UK economy over the past three years.

As we can see, this is the third consecutive year where the consensus for growth has started out at around 2 per cent before gradually being pushed down towards zero as time has passed.

Making a prediction based on trends depicted in the graph, Scotiabank say that by mid-summer they expect to be forecasting near zero GDP growth.

The report also says that the variables which impact economic growth are less favourable this year than last, meaning GDP growth could be “as low as zero”:

“The UK economy barely posted positive growth last year – up by around ¼% y/y. The question is whether growth during 2013 should be higher, lower or the same as last year…There are two key drags on growth during 2013 which suggest that output should be weaker this year than last year.

More specifically, government consumption was the fastest growing component of GDP last year – up by 2½% y/y. The latest OBR projection is for just 0.4% y/y government spending growth this year as cutbacks kick in. If that proves to be correct then it will subtract almost half a percentage point from headline GDP growth this year.

Secondly, consumer spending growth is likely to face increasing headwinds this year. 2012 was a good year for household real disposable income growth on two fronts. Employment growth surged from near zero at the start of the year to a peak of around 2% y/y by end-year. On top of that, inflation tumbled from a peak of over 5% y/y down to a low-point of just above 2% y/y. As a result real disposable income growth improved substantially, or rather, was much less negative.

Unfortunately, both trends seem to be reversing this year. Employment growth has already begun to falter and is likely to have halved by mid-year, not least given the clues from this week’s REC labour market survey. Inflation is also on the rise again – we see the peak at 3½% y/y – albeit somewhat lower than the recent peaks that exceeded 5% y/y. Hence household real disposable income growth is likely to turn down and in turn, consumer spending growth is likely to slow down this year.

…given the above, we think it is reasonable to assume that underlying growth this year will probably be in the region of 0.1 to 0.2% q/q. In turn, it is quite plausible that full-year growth could be as low as zero.”

11 Responses to “Economy to continue flatlining this year”

  1. OldLb

    Thatcher produced growth of 30% whilst she was in power.

    Looks like you need a Thatcherite conversion so solve the mess.

    Except it won’t work.

    State debts, 7,000 bn

    Total UK wealth, 7,000 bn

    You can’t take the lot to pay the debts. Look at Cyprus and the results of a 10% raid on just the money held in banks.

  2. OldLb

    So how are you going to pay the state debt of 7,000 bn?

    It’s rising at above inflation. Most of it is inflation linked, and in the case of the pensions, there is the triple lock in place. A derivative that’s very hard to value.

    Income is 550 bn

    Spending of 700 bn

    Total UK wealth, everything from nukes, to personal property, to share ownership, to pavements, is 7,000 bn.

    What’s the plan?

    2% growth, of which the state gets 50%, or 1%? The debts are rising at a faster rate.

    To put the numbers. Inflation at 3% means your debt goes up by 150 bn (the deficit) plus 210 bn (the growth in existing debts) of 360 bn for the first year.

    Spending isn’t being cut, so that goes up by 3%.

    Taxes given the economy is flat, stay the same.

    If you get 2% growth you get an extra 11 bn in revenue. However, you are spending an extra 21 bn.

    The state is bankrupt.

  3. Gareth Millward

    I’m just saying don’t take irrelevant statistics out of context, brah.

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