Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday, 31 March 2015

A quick note on two recoveries


Along with revised GDP numbers, we now have GDP per head for 2014 as a whole. (I have used estimates for the fourth quarter up until now.) Growth in 2014 was 2.17%. That is certainly an improvement on previous years: 2013 1.03%, 2012 -0.01%, 2011 0.80%, 2010 1.10%. However it is no more than the average growth rate between 1955 and 2010 of 2.1%.

As charts that I have posted earlier clearly show, this average of around 2.1% really does reflect what looks like a pretty constant trend over the past. We have had recessions before, but they were followed by above average growth: in 1983 GDP per head grew by 4.2%, and in 1994 by 3.8%. So as recoveries go, this one has been terrible.


There are signs that the Eurozone recovery may also be beginning. If this turns out to be the case, you are sure to read a great deal about how this is all down to the ECB finally adopting Quantitative Easing. I suspect you will read rather less about another explanation, which is that fiscal contraction began to ease off last year, and that this will continue into 2015. The chart below is from the March 2015 OECD Economic Outlook, so the 2014 numbers should be fairly reliable estimates.

Government underlying primary balances: OECD Economic Outlook March 2015

The message in both cases is simple. Fiscal austerity reduces growth. When fiscal austerity stops, growth can resume. It’s a message that rather a lot of people who were responsible for the fiscal tightening would rather you didn’t hear.


  1. Those "rather a lot of people" should of course be sacked. But they won't be. I doubt their careers will suffer so much as a teensy setback.

  2. Wait till you see USA job numbers. It should be between 300 and 400 000. Dollar is going higher.

  3. Hi Simon

    If George Osborne were slipped a truth serum, is it fair to surmise that he would say "that the economy is doing quite well (a return to modest growth, though poor by historical standards) not because of our LTEP (ie austerity), but because the LTEP and austerity were largely suspended from mid 2012 onwards."?
    ie, current rhetoric and claims regarding the LTEP are quite literally the complete opposite of the reality.

    Interestingly, though not mentioned by the Chancellor is the IFS report of the 4th March on UK living standards. Little wonder why today George chose to cite one particular measure of living standards (Real Household Disposable Income (RHDI) per capita) out of the possible 10 that the ONS calculates to trumpet the supposed 'rise in living standards'. It wouldn't be because this method uses the mean, when others rightly and more accurately use median and so avoid extreme values distorting the true picture so much?
    Anyway, the unmentioned IFS findings of the 4th March were:
    "New IFS projections suggest median (middle) household income in 2014–15 is at around the same level as it was in 2007–08 before the recession, though **still more than 2% below** its 2009–10 peak."
    And more broadly:
    "...the recovery in living standards has been slow. Between 2011–12 and 2014–15, median income grew by just 1.8%, much more slowly than during the first three years of recovery in the early 1980s (9.2%) and 1990s (5.1%). This is mainly the result of weak growth in earnings for those in work."
    And the bit he really doesn't want the media to report:
    "Tax increases and benefit cuts, implemented as **part of the government’s deficit reduction plan**, have also reduced incomes."
    This crucial last sentence remains duly unreported, as does:
    "Incomes for those of working age remain below pre-crisis levels. After adjusting for group-specific inflation, median income for young adults (aged 22 to 30) is projected to be 7.6% lower in 2014–15 than in 2007–08, and it is estimated to be 2.5% lower for those aged 31 to 59."
    (The IFS do then go on to say that those over 59 have seen increases).
    Perhaps a few more charts are needed to challenge Osborne's rhetoric and to more accurately reflect the living standards situation for so many of the UK the population?
    (Robert Peston tonight went along with the Chancellor's preferred measure, without mentioning any other or indeed the IFS findings).

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  5. Prof Wren-Lewis you have given the Labour party more worthwhile data than Mr Balls seems to be capable of dealing with and still they seem unable to use it. I m a simple soul I like most of the excellent graphs you provide any one of which would have made an excellent poster for Labour. I like graphs because they give you a full picture over a length of time not the cherry picked moment so beloved by the political class.
    Do I have this right if we had maintained 2% growth since 2010 the GNP should be at least 10% higher maybe with compound interest 13-14% higher. Somewhat higher than the cherry of 0.2% touted by Mr Osborne.
    Keep up the good work you may not yet be educating the masses but you are educating me thank you.

  6. Where does the UK fit on this chart?

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