Ailing recovery? Manufacturing is just what the doctor ordered.

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Today's GDP figure, showed the economy contracted 0.5% compared with last quarter's growth of 0.7%.

This is clearly not good news. However, following a recession, growth rates tend to be a bit bumpy. In the few years following the recession in the 1980s quarterly growth rates oscillated between -0.7% and 1.5%.

Up until Q3 growth coming out of the recession was faster than in the 1980s or 1990s. GDP is now 2.2% higher than it was at the end of the recession – weaker than in the 1980s – though stronger than the 1990s when this figure was 0.5%.

Figure 1: GDP index (first quarter post-recession = 100)

The sharp fall in activity should serve as a stark warning that growth and the recovery cannot be taken for granted.

But what we can see is that, manufacturing is growing. In fact, it grew by 1.4% over the quarter. Recent survey data (including the PMI, which reached a 16-year high) shows that strong growth rates look likely to continue. But, manufacturers – as with the rest of the economy – face a challenging 2011.

The pressure is now on the government for a decisive outcome from its growth review. The government needs to deliver concrete proposals to support sustainable, balanced growth through 2011.

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