Consumers once again bail out underperforming exports and business investment - ITEM Club comments on today's GDP figures

27 March 2013

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Andrew Goodwin, senior economic advisor to the EY ITEM Club, comments on today’s GDP figures:

  • The consumer has once again had to bail out underperforming exports and business investment
  • Q1 remains on a knife edge – the snow and the tendency to under-report early estimates points to another negative

“Six months ago GDP was on course to fall by around 0.3% but now, even after a poor Q4, the outturn is +0.3%. There has clearly been an upward bias to revisions over the past couple of years, which suggests that we should not place much importance on the current outturn of -0.3% for Q4.
 
“Looking at the detail, the long-awaited rebalancing of the economy remains elusive. The consumer has once again bailed out under-performing exports and business investment, after an unexpectedly strong rebound in real incomes in 2012. The growth in employment and generous indexation of social benefits outweighed the impact of high inflation and boosted household spending power.
 
“The large increase in the personal allowance should provide further support to consumer incomes this year. But the consumer cannot carry the rest of the economy forever and it is imperative that businesses step up to the plate soon if we are to generate a sustainable recovery.
 
“Prospects for Q1 remain on a knife edge. Last week’s retail sales figures raised hopes that the consumer would once again bail us out in Q1, but the poorer figures from production and construction are a real concern. Tomorrow’s Index of Services data will be important in indicating which way Q1 will fall but, given the disruption from the snow – both in January and over the last week – and the ONS’s tendency to under-report their early estimates, we wouldn’t be surprised to see them report another decline in GDP in Q1.”