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Roots of recovery

Stephen Radley March 27, 2009 14:16

Today's final statistics for GDP in the last three months of the year confirm what we already know - the UK is in a serious recession.  

Behind the headline contraction of 1.6% in the economy, equivalent to an annual fall of about 6.5%, was particular weakness in consumer spending and investment. Though exports fell by nearly 4%, net trade actually made a positive contribution with imports down by 6%.  The gloomy readings from a range of business surveys suggest that the economy will have contracted by a similar amount in the first three months of this year.  

The question is where we go from here.

The economy is now receiving massive amounts of stimulus. Very low interest rates, interventions to support bank lending and to expand the money supply, last autumns's fiscal boost and a significantly more competitive exchange rate are all playing their part.

In time, the large fiscal boosts aanounced by the United States, China and other major erconomies will start to benefit UK exporters. We can see the odd positive sign. Some industries are reporting that the destocking phase looks to be over, though customers are not necessarily buying again. Companies in the car industry are also starting to see the benefits from the scrappage schemes introduced in other EU countries.  The early signs from the Bank of England's quantitative easing are also encouraging.

Despite this, the best we can hope for is a slowdown in the pace of decline, with the economy stabilising towards the end of the year. In particular, the downward forces on the consumer are strong - rising unemployment, falling house prices and wealth levels and a growing understanding that they built up too much debt in recent years.   

It is too early to be talking about green shoots but we can at least see that the roots of recovery are developing.

  

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