Darling’s 2008 and 2009 GDP numbers actually stack up well to existing forecasts by economists. It’s beyond 2009 that’s a problem.
Composite economist estimates for 2008 and 2009 are below in white, with Darling’s forecast from yesterday’s pre-budget report in red.
There are no compiled economist estimates for 2010 to 2011 (or at least, we couldn’t find them on the Bloomberg), but there seems to be a general consensus that on this front Darling is being a touch optimistic.
This from Bank of America today:
As expected, Chancellor Darling formally acknowledged the UK was in recession by taking an axe to the Treasury’s forecasts made back in March. Darling presented a scenario of a short, sharp recession with the economy contracting around 1.0% next year but bouncing back to growth of +1.75% in 2010 and then reverting to its past decade trend rate of 2.75% in 2011…
Next year, we believe the economy is likely to contract by at least 1.2%, with a 1.5% outturn a rising risk. While our 2010 forecast, at 1.6%, is not too dissimilar from the Treasury’s call, we believe that the recovery in later years will be far more muted. It is unlikely, in our view, that the UK economy will be able to achieve growth anywhere close to the 3% of recent years in the absence of robust financial services growth, a surging house market and easy credit.
More likely, the UK will even struggle to reach the 2.5% average over the past 50 years as the economy rebalances away from leveraged household and public spending towards a greater weighting of exported goods and services under a weaker sterling exchange rate. We expect growth of at best 2.5% in 2011.
Combine slowing GDP with a massive economic stimulus, and what do you get? — Soaring public sector borrowing.
It’s interesting to note that net debt rose 4 percentage points to 36 per cent of GDP between 2002 and 2005 — when GDP growth was averaging 2.5 per cent. It currently stands at something like 60 per cent of GDP. That will likely worsen in coming years as tax revenues slow and social expenditures (things like unemployment payments, etc.) soar.
No surprise, then, that it’s now cheaper to insure Unilever’s debt against default than the UK government’s.
Related links:
Breaking the rules - FT Alphaville
Darling aka Robin Hood - FT Alphaville
Row of glum faces spells out misery - FT
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