Welcome, 77 artists, 40 different points of Attica welcomes you by singing Erotokritos an epic romance written at 1713 by Vitsentzos Kornaros

Thursday, April 25, 2013

GDP growth figures get George Osborne off the hook – for now

Analysis: the fact the UK achieved first-quarter growth of 0.3% matters little economically but a great deal politically

In every way bar one, news that the economy grew by 0.3% in the first three months of 2013 was no big deal.

The increase was small by historical standards, still leaves the level of output well below where it was when the recession began, and offered scant evidence of the rebalancing towards manufacturing and exports that is integral to the government's plan.

In economic terms, it does not matter that much whether the economy grew a bit or shrank a bit since the big picture is of a country still bumping along the bottom after a deep and prolonged downturn.

Other countries, such as the US and Germany, have recouped all the ground lost in the slump of 2008-09 and then some. Britain's output is still 2.6% below where it was when the recession began in early 2008 – a slower recovery than in the aftermath of the Great Recession of the 1930s.

Politically, though, the first quarter growth numbers mattered a lot. After a sticky couple of weeks that has included a second credit downgrade, a wigging from the International Monetary Fund and a setback for the labour market, George Osborne could ill afford Britain plunging into its first triple-dip recession.

The chancellor did not really care about the size of the increase in gross domestic product between January and March just so long as there was one. Equally, the days when the Treasury fretted about which bit of the economy the growth comes from are long gone. The new mantra is better unbalanced growth than no growth at all.

As it happens, the jump of 0.3% was slightly higher than economists had predicted, and would have been close to the UK's long-term trend had the construction sector not continued to suffer so badly.

The service sector – which accounts for three-quarters of the economy – expanded by 0.6% while a bounce back in North Sea output also boosted growth. Manufacturing continued to struggle and, on past form, London and the south east will have accounted for the lion's share of the growth..

Assessing what the figures mean for Osborne can best be judged by looking at the counter-factual: how it would have looked had the figure been negative.

In those circumstances, the chancellor would have carried the can for the losses the government is certain to suffer in next week's local elections, and with the next few months dominated by concerns that there might be a third successive quarter of falling output, he would have looked a lot more politically vulnerable than he does today.

The better news for Osborne may not keep on coming, not least because the economy faces three significant headwinds: falling real incomes, the coalition's deficit reduction programme and the dire state of the eurozone economy.

There is no obvious reason to imagine that growth will accelerate in the second quarter, let alone generate the "escape velocity" sought by Mark Carney, the next governor of the Bank of England.

What's more, it is possible that the first estimate of gross domestic product will be revised down, since the Office for National Statistics had only limited data for March when it came up with the number for the first quarter of 2013.

High street spending appears to have been depressed last month by the coldest March in 50 years, and the ONS will have more information about that when it updates the growth figures next month.

But for now, at least, Osborne is off the hook. He can say, as he did on Thursday, that the economy is gradually on the mend and that the government is gradually cleaning up the mess it inherited from the last Labour government.

This is a selective interpretation of the recent past. It ignores, for example that growth was relatively strong in the last six months of Gordon Brown's premiership.

It airbrushes out the impact on confidence of Osborne's ill-judged comparisons between Britain and Greece.

It fails to take account of the effects on spending of coalition tax increases and deep cuts in infrastructure programmes.

But political success is often determined by which practitioner of the dark arts comes up with the more plausible story. Osborne now has one to tell. © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds