Rebalancing the economy: we’ve heard a lot about it, but what is it all about?
In essence it is about achieving two things: internal balance (a balance between consumption and investment); and external balance (a balance between exports and imports). Today’s GDP and investment figures allow us to look a little closer at which way the scales of economic balance are tipping:
Consumption:
In 2010q2 consumption by households grew by a little over £5 billion. Consumption by households accounted for 63.1% of GDP. Two years earlier (before the full effects of the recession were felt) this figure was 61.6%. Even a quarter earlier this figure was 62.7%. Consumption figures, therefore, do not suggest we are moving towards internal balance.
Investment:
Business investment fell by 1.6% over the second quarter. Gross fixed capital formation (investment not including restocking) fell by 2.8% in 2010q2. It now accounts for 14.2% of GDP compared with 16.9% two years ago. Investment figures do not suggest we are moving towards internal balance either.
So is there any good news?
Well yes. Firstly, there are some sectors where investment has been growing: these are manufacturing, construction and public corporations. Though, investment from construction and public corporations might fall back as public sector spending cuts bite…
And secondly, there is some good news on the external balance: the contribution to growth of net exports was zero, which is an improvement on the last three quarters, when net exports had a negative impact on growth.