Bumping Along the Bottom

EXTRACT: But nothing can alter the fact that GDP is still more than three percent short of its pre-crisis peak. The ONS informs us that the economy had contracted by 6.4% between the start of 2008 and the middle of 2009, and had since recovered about half of that lost output. Or, to put it another way, the level of output in the third quarter of 2012 was almost exactly the same as it had been in the third quarter of 2011. It will take a year of genuine and robust growth simply to return the economy to where it was during the period between the run on Northern Rock in September 2007 and the collapse of Lehman Brothers a year later. And it will take at least a decade to make up even half the output lost over the past four and a half years, given that GDP is 13%-14% below where it would have been, had growth continued at its pre-recession trend of 2.5% a year.
Remember too, extremely unpleasant thought though it is, that some 80% of the spending cuts are still to come. We are not at the beginning of the end, as suggested by George Osborne and David Cameron, but instead at the end of the beginning. None other that the International Monetary Fund - well, its managing director at least, Christine Lagarde - admitted earlier this month that the impact that austerity has had on growth (or non-growth) had been drastically “underestimated”. Those pesky fiscal multipliers. Barring a miracle, more demand, not less, will be sucked out of the economy in 2013-14 than in 2012, as the chancellor’s fiscal tightening intensifies. Economics of the madhouse.

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