Today’s quarterly GDP figures are encouraging but we must remember that we still have far to go before we can truly say that the economy has recovered. Q4 GDP growth of 0.7% is good, especially considering the average of quarterly growth figures since the beginning of 2008 is -0.04%.
The figure is slightly below the 0.8% or 0.9% growth figure which many had expected but it remains on the positive trend that we have seen at least since April.
Services output and production output have grown a healthy 0.8% and 0.7% over the 4th Quarter. Services remain the driving force behind growth and the monthly index of services has shown positive month-on-month growth all throughout 2013. However, the construction data was disappointing. A rather drastic 4% fall in construction over November has meant that overall construction output fell 0.3% in Q4. Nevertheless, we should look through this volatility and examine the trend; indeed construction output increased by 4.5% between Q4 2012 and Q4 2013.
As usual, we must be wary of possible revisions to the data. The ONS reports that since the beginning of 2007, the third estimation of the GDP figures had led to an average downward revision of 0.01% with the average absolute change of 0.12%.
Over 2013 as a whole, the economy grew 1.9% which is certainly a return to more normal growth levels. However, it remains significantly below the pre-crisis average growth rate between 1965 and 2007 of 2.8%. This raises concerns about the extent to which the financial crisis and subsequent recession have damaged the underlying growth potential of the economy and shows the need for more productivity enhancing reforms. A return to pre-crisis growth rates may well be impossible but it should not be for lack of trying. Recent announcements on deregulation are encouraging steps in the right direction.
GDP continues to improve alongside rising employment and easing inflationary pressures. However, after 23 Quarters since the onset of the recession, we remain 1.3% below the pre-crisis peak. As shown below, the recovery has been much slower than after previous recessions. At this stage after the onset of recessions in the early 1980s and early 1990s, GDP was 9.4% and 14.2% above the pre-recession peaks.
These are broadly good figures; the economy is clearly in recovery and GDP has gained traction. However let’s not get carried away; there is much work to be done yet.