Danger that today’s GDP figures will suppress confidence further – ITEM Club

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

  • The updated construction data had always threatened a downward revision to GDP
  • We have very little faith in these figures, particularly given the much stronger labour market data
  • The danger is that these figures could depress confidence further

“The downward revision isn’t really a surprise - the updated construction figures from a couple of weeks ago meant this was always likely. However we are even more sceptical than we were last month about the quality of the data, now that we know the economy managed to increase employment levels in Q1. It would be very unusual for an economy that is in recession to expand employment levels, even more so when the public sector is cutting back in the way that it is. Throw in the much stronger business surveys as well and we have very little faith that these GDP figures are giving a true representation of the strength of the economy.
“The detail of the data also suggests that something isn’t quite right. Destocking wiped 0.6%pts off quarterly growth. This looks decidedly suspicious and is likely to signal that the ONS is having trouble reconciling the expenditure and output measures.
“Elsewhere in the expenditure breakdown there was more encouraging news. We’ve long seen corporates as being central to the recovery, so the strong rebound in business investment is a step in the right direction. Consumers also appear to be holding their own, in spite of the severe squeeze on their finances.
“It’s likely that these figures will revised upwards substantially, although history tells us that this process may take a while. In the meantime, the concern is that the extra bank holiday in June will cause another negative quarter in Q2. The prospect of three successive negative quarters, added to the recent events in the Eurozone, threatens to depress confidence even further.”