Wednesday, 26 January 2011

Double Dip already?

Most Economists predicted 0.2%-0.6% growth in the last quarter of 2010,  I thought I was sticking my neck out a bit predicting 0.2-0.4% and stating we would go into negative growth in 2011. However despite being being convinced we will go into double dip, I was very much taken back when Oct, Nov and Dec of 2010 growth figure was -0.5% growth!!
As we can see from the graph this is serious, it is more of a dip than at the beginning of the credit crunch. I decided to plot the Prime Ministers and parties onto the graph, it highlights mainly that David Cameron inherited an economy in recovery and has now knocked it down into near to a double dip. This graph also highlights how John Major managed to recover GDP from the 1990s recession and then hand the boom over to Tony Blair who kindly have Gordon Brown the bust! 
It seems that Fiscal policy is more important than George Osborne hoped, lets hope that this is just teething problems for Crowing out theory. Theoretically all this negative growth means is more surplus capacity for new businesses to expand into as the public sector contracts..
Yet to say that GDP is all a result of Government policy would be wrong though. Its easy to blame Gordon Brown for the credit crunch but in reality it was not his fault. Equally to colour in this dip blue and blame it on the coalition is also naive. George Osborne has blamed the fall in GDP down to the cold weather. 
If we break down the figures it is true that construction was the driving factor behind the fall in GDP however to say it was all down to bad weather I think is also being naive, there have been many Government construction projects canceled in the wake of budget cuts, this also could have hurt construction. According to this BBC article the ONS said: '...even if the weather impact had been excluded, activity would have been 'flattish'"  So even the snow can't explain the poor performance!
All in all wether the negative growth was the Governments fault or not going down a road of fiscal contraction during a period of negative growth is reckless.  

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