UK still in recession, US GDP growth revised to 2.2% in QIII

UK still in recession

The UK today confirmed its position as the only G20 country still mired in recession. While revised upward from an earlier estimate of 0.3%, the economy contracted by 0.2% in the third quarter of 2009.

In recent weeks analysts predicted that today’s figure would show the country has already exited the recession. Instead Britain has now seen six successive quarters of contraction – its longest downturn since the 1930s. The loss of output since early 2008 now stands at 6.03%.

In a new blow to Chancellor Darling’s optimistic forecasts, the economy was dragged down by declining services and industrial production output. This was partially offset by a rebound in construction, according to data from the Office for National Statistics.

Darling’s forecasts of 1-1.5% GDP growth in 2010 and 3.5% in 2011 are seen by analysts as overly optimistic. Many suggest the UK may struggle to grow at all next year. The OECD estimates the UK economy will expand by 1.2% in 2010 and 2.2% in 2011.

If the Treasury’s forecasts prove wrong, the government will have to find yet more money to cover its spending. Borrowing has reached a record £20.3 billion in November alone, and the 2009 budget deficit is expected to come to a staggering £178-185 billion.

That represents more than 13% of GDP; the 2010 deficit is also likely to reach 13-14% of GDP. (Which is higher than Greece’s 12.7%. Yet, while Greece is expected to cut its deficit by nearly 4% of GDP next year, the UK government has opted to do nothing to reduce Britain’s deficit in 2010.)

Today’s data also showed the UK household saving ratio to have reached 8.6%, the highest level since 1998. Just before the start of the recession in early 2008 it stood at a record low of -0.7%.

US GDP growth at 2.2% in QIII

In the US third quarter GDP growth has been revised down to 2.2%, from an earlier estimate of 2.8%. It was the first quarter of economic growth after four quarters of contraction.

Analysts are revising upward their forecasts for 2010 GDP growth. The latest predictions expect the US economy to expand by 2 to 5% (depending on forecaster), signaling possibly a stronger snap back from the most severe recession in three decades.

The National Association of Business Economists raised its forecast of 2010 growth to 3.2%, which coincides with the figure the White House used in its latest economic outlook. OECD, on the other hand, expects a 2.5% growth in the US next year. Michael Mussa, a former IMF economist, now with the Peterson Institute for International Studies, expects the economy to grow at a rate of 5% in 2010, predicting a strong recovery in both growth and jobs.

The big question marks that will influence next year’s growth are the consumers and the housing sector. Although analysts expect to see job growth next spring, unemployment will remain high (likely around the 9-10% mark).

With historically high levels of household debt, consumer spending growth may remain weak for much of next year. Households are likely to prioritize paying down debt at the expense of personal spending. While house prices seem to have bottomed out, housing will also unlikely be the engine of growth it has been in recent years.

Eurozone set for weak 2010 growth

After five quarters of falling output the 16-nation eurozone exited the recession in the third quarter, posting a 0.4% GDP growth. (The 27-member EU saw GDP up by 0.3% in QIII.)

According to Eurostat, a jump in inventories and exports were the main drivers of economic growth in QIII, while household consumption remained weak amidst high unemployment (near 10%).

Economic growth is expected to be low at 0.9-1% in 2010, according to OECD and the European Commission.

Tags: Alistair Darling, budget deficit, Chancellor, Eurozone, GDP growth, UK recession

This entry was posted on December 22, 2009 at December 22, 2009 and is filed under Featured, Finance, News. You can follow any responses to this entry through the RSS 2.0 feed.