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| George Osborne's 0.6% growth is good but unspectacular | George Osborne's 0.6% growth is good but unspectacular |
| (2 months later) | |
| Good but unspectacular. That was the instant reaction to news that the economy grew by 0.6% in the second quarter of 2013. | Good but unspectacular. That was the instant reaction to news that the economy grew by 0.6% in the second quarter of 2013. |
| There was certainly enough in the data to give cheer to George Osborne and the rest of the cabinet. The economy's rate of expansion has doubled since the first quarter and all fears of sinking back into recession have now been banished. | There was certainly enough in the data to give cheer to George Osborne and the rest of the cabinet. The economy's rate of expansion has doubled since the first quarter and all fears of sinking back into recession have now been banished. |
| What's more, all three main sectors of the economy contributed to growth. Services – which account for three quarters of national output – and industrial production both grew by 0.6% on the quarter, while construction – which has been a powerful drag on gross domestic product – picked up sharply. | What's more, all three main sectors of the economy contributed to growth. Services – which account for three quarters of national output – and industrial production both grew by 0.6% on the quarter, while construction – which has been a powerful drag on gross domestic product – picked up sharply. |
| So if the economy is growing and the expansion is broad-based, why the faint tinge of disappointment? | So if the economy is growing and the expansion is broad-based, why the faint tinge of disappointment? |
| Well, compared with its miserable performance over the past few years, 0.6% growth looks impressive. But in the longer term it is no great shakes. Historically, the economy has grown by around 2.25%-2.5% a year on average, so the second quarter was smack in line with that trend. | Well, compared with its miserable performance over the past few years, 0.6% growth looks impressive. But in the longer term it is no great shakes. Historically, the economy has grown by around 2.25%-2.5% a year on average, so the second quarter was smack in line with that trend. |
| But after recessions, national output has tended to rise strongly as it makes up for the ground lost during the downturn. Given that the level of GDP is still 3.3% below its previous peak, quarterly growth rates of 1% would be more normal for this stage of the cycle. The year-on-year growth rate of 1.4% is also below par. | But after recessions, national output has tended to rise strongly as it makes up for the ground lost during the downturn. Given that the level of GDP is still 3.3% below its previous peak, quarterly growth rates of 1% would be more normal for this stage of the cycle. The year-on-year growth rate of 1.4% is also below par. |
| Osborne's hope is that the economy can achieve stronger growth rates over the coming quarters and the recent performance of the economy gives the chancellor reason to be optimistic. The economy shrank by 0.3% in the final three months of 2012, grew by 0.3% in the first three months of 2013 and has now posted 0.6% growth in the second quarter. Stronger growth may encourage firms to go ahead with investment projects mothballed during the period when the economy was flatlining. | Osborne's hope is that the economy can achieve stronger growth rates over the coming quarters and the recent performance of the economy gives the chancellor reason to be optimistic. The economy shrank by 0.3% in the final three months of 2012, grew by 0.3% in the first three months of 2013 and has now posted 0.6% growth in the second quarter. Stronger growth may encourage firms to go ahead with investment projects mothballed during the period when the economy was flatlining. |
| But a number of conditions will need to be fulfilled for that to happen. The Bank of England will need to keep monetary policy loose, the flow of investment to business will have to improve, growth in the rest of the world (particularly Europe) will need to pick up, and consumers will have to increase their spending, either by securing real wage increases or (more likely) running down their savings. The first of these four conditions will certainly be met. The other three may prove trickier. | But a number of conditions will need to be fulfilled for that to happen. The Bank of England will need to keep monetary policy loose, the flow of investment to business will have to improve, growth in the rest of the world (particularly Europe) will need to pick up, and consumers will have to increase their spending, either by securing real wage increases or (more likely) running down their savings. The first of these four conditions will certainly be met. The other three may prove trickier. |
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