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Analysts' reactions to GDP data

Date: Wednesday 25 Jan 2012

Analysts' reactions to GDP data

Howard Archer (Chief UK + European Economist at HIS Global Insight)

“The economy stuck one foot back through the recession door in the fourth quarter of 2011 as GDP contracted 0.2% quarter-on-quarter. We suspect that the second foot will follow in the first quarter of this year as still pressurized and worried consumers limit their spending, business hold back on investment amid a currently very uncertain and worrying outlook, government spending and investment is pared, and muted global economic activity dampens exports.

"(…) No details were released on the expenditure side of the economy, but we suspect that GDP was dragged down by weaker business investment and a running down of socks. There could also well have been reduced government spending. The decline in GDP was likely limited by some growth in consumer spending given that retail sales rose 1.1% in the fourth quarter and by a limited positive contribution from net trade."

Joshua Raymond (Chief Market Strategist, City Index commented)

“Overall, we expect GDP growth to be limited to just 0.3% in 2012, and the Eurozone sovereign debt crisis continues to pose appreciable downside risks to the growth outlook.

“At the very least, the negative GDP reading will keep the pressure on both the Coalition government and the Bank of England to re-ignite the faltering UK economy through additional stimulus measures, though with such a heavy reliance on Europe as a large UK trading partner, the UK’s economic fate lies in the hands of Brussels as much as London.

"However, should todays GDP reading escalate fears significantly of a marked period of negative quarterly UK GDP? Perhaps not. The real concern for now remains the prospect of aneamic UK growth in the medium term than of a prolonged period of negative quarterly GDP.”

Phil Orford (Chief executive Forum of Private Business)

“(…) double dip recession not a racing certainty and says confidence a big problem.

“There’s no escaping it, the figures are disappointing. But it’s important to put it into perspective. Quarter 4 in 2010 saw a significantly higher contraction of 0.5%, which was attributed to the snowy weather, followed the next quarter by positive growth.

“While there wasn’t a repeat of the weather for Q4 2011, there was the equally damaging eurozone debt storm which hugely dented confidence among consumers and businesses. People are erring on the side of caution and are holding back on spending and growth plans.

“You can also factor in to the equation two days of public sector industrial action, and a 4% drop in energy consumption due to the mild autumn. None of these helped.

“So it’s by no means certain that the economy will continue with negative growth for this current quarter, although if there is any growth it will be small.”

Blerina Uruci (Europe economist at Barclays Capital)

“While these figures reveal significant weakness in the economy, we do not think they mark the start of an inexorable slide into a severe recession. There are two important aspects to the news in Q4 GDP. First, the weakness came mainly from industrial production and construction output, which are very volatile, and we might expect to see some of this weakness unwound in Q1. Second, survey indicators suggest that the latest spell of weakness in the economy has troughed and we should expect growth to slowly improve from here. In fact the PMI surveys showed activity bottomed in October (…)

“While a technical recession cannot be ruled out, the signs are that the economy is turning the corner slowly and there is little evidence to support predictions of a deep recession. In fact, we forecast the economy to grow marginally by 0.1% q/q in Q1 and to continue to improve thereafter. Nevertheless, with the euro crisis grinding on, the near-term economic outlook remains precarious.”

AB

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