GDP figures: Little new information in the headline data but detail is very disappointing, says ITEM club

23 May 2013

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

  • The detail is very disappointing and deflates some of the recent optimism around the recovery
  • Yet the monthly data suggests growth could be stronger in Q2
  • Such contradictions emphasise how patchy and fragile this recovery is – it’s going to be a long, hard, slog

“There is little new information in the headline data but the detail is very disappointing. There is no sign of any underlying strength in the economy, as without a large contribution from stockbuilding, the economy would have contracted in Q1. The fact that consumer spending barely rose, investment fell and net trade was again a drag on the economy, deflates some of the optimism that had built up after the stronger run of data over the past few weeks.

 “Having said that it still looks as if Q2 growth will be firm and possibly even stronger than Q1. The monthly data shows service sector output 0.5% above the Q1 average in March and with the production and construction data showing similar trends, this provides a solid springboard for Q2 GDP. Indeed, activity would have to fall back significantly through the quarter to generate a weaker outturn than Q1.

 “These conflicting signals emphasise how difficult it is to forecast the path of the recovery. Though we may get a better Q2, you can’t build a recovery on stockbuilding. If we don’t get an improvement in consumer spending, business investment and net trade it will be impossible to sustain the recovery. We are still optimistic that the momentum will build, but this data reinforces the idea that this recovery is going to be a long, hard, slog.”