Chances of technical recession seem lower, but recovery is likely to be slow and patchy - ITEM Club comments on today's GDP figures
Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, comments on today’s GDP figures:
Rise in consumer spending is a welcome surprise, but continued reliance on public sector is worrying
Impact of Eurozone crisis clearly visible through the sharp decline in business investment
Chances of technical recession seem lower, but recovery likely to be slow and patchy
“The pickup in consumer spending is a welcome surprise and is broadly consistent with the stronger retail sales figures. Although it comes against a backdrop of falling real incomes, there must be some doubt over whether it can be sustained. On the downside there is still a worrying reliance on the public sector, without which GDP would have declined even further.
“The impact of the Eurozone crisis is clearly shown through the sharp decline in business investment. The climate of uncertainty has caused firms to sit on their cash and unfavourable credit conditions are compounding the issue further. Even after this week’s deal for Greece, it’s difficult to envisage this situation changing significantly in the short-term.
“Recent survey data suggests that the chances of a second successive decline in GDP in Q2 – a technical recession – have receded. However, even if that figure does prove to be positive, any recovery thereafter is likely to be slow and patchy. The strong increase in both consumer and government spending is unlikely to be sustained, while reduced demand from the Eurozone implies that prospects for export growth are also weak.”
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