Time to reprise RBC’s chart of 2009 GDP estimates as published on FT Alphaville last Friday — the original and as well as an amended version to account for Chancellor Alistair Darling’s stunning reversal on the matter of UK growth in 2009 following his presentation of the Budget.
Here’s the original.
And how it stands now…
Although Howard Archer, economist at IHS Global Insight, feels that’s still too much of an optimistic view. As he states (Archer’s emphasis):
The Chancellor has forecast that the economy will contract by 3.5% in 2009, followed by GDP growth of 1.25% in 2010 and 3.5% in 2011. He sees long-term trend growth at 2.75% The Chancellor expects the economy to start growing by the end of the year and then to increasingly strengthen helped by improving global economic activity, low inflation and the stimulus measures that have been enacted.
We believe that these forecasts are mildly optimistic in the near term and much more optimistic in the long term.
We expect GDP to contract by 3.8% in 2009 and then to edge down by a further 0.2% in 2010. We then see GDP rising by 1.7% in 2011. This assumes that the economy will contract through this year, albeit at a reduced rate as the year progresses. We suspect that the economy will only essentially stabilize in the first half of 2010 before recovery develops gradually.
We suspect that 3.5% is far too optimistic for growth in 2011 especially given the very substantial fiscal tightening that will be required.
We also have serious doubts about Mr. Darling’s forecast of a trend growth rate of 2.75%. With extended substantial corrective fiscal action needed, the financial sector unlikely to return to the growth rates seen in recent past years and significant productive capacity currently being lost, we believe that trend growth will be 2.5% at best, and very possibly only 2.25%.
Related links:
Time to smell the coffee over at HMT - FT Alphaville
Gilt auction failure begins – FT Alphaville
Darling aka Robin Hood – FT Alphaville
Darling GDP numbers – FT Alphaville