Emergence from recession?

The economy of the United Kingdom has technically exited recession by posting fourth quarter 2009 economic growth of 0.1% over the third quarter of 2009. However, this result is far below the consensus expectation of 0.4% growth.

Analysis: Growth of 0.1% in a quarter is like you handing someone $1,000 to invest at the beginning of the quarter and them handing you $1 at the end. Obviously “growth” of this magnitude is negligible. Not only that, but initial GDP figures are chock full of analysts’ statistical estimates and inferences. This is done because it takes awhile for all of the receipts to be confirmed and double checked and counted. That’s why GDP figures are frequently revised. So the 0.1% growth for the United Kingdom is likely to be revised. That revision could be either upward or downward. My guess is that it will be revised upwards, but barely. But if the GDP figure is revised downwards then the U.K. is still in the middle of a recession. Even with 0.1% growth one could argue that the U.K. is still in recession. Not good.

This is further evidence of the tenuous nature of the worldwide economic recovery taking place. While growth has resumed in the United States, the growth is uneven and stilted. There is also evidence of weak economies in Japan, Germany, Italy, and Spain. And evidence abounds of very weak economies in the rest of Europe, for example Greece which is about to default on its nation’s debts. Ouch! If the U.S. exits recession but the rest of the world remains in recession that is bad news for the U.S. The pain comes from having weak trading partners. The pain comes from having diminished foreign capital from other nations that can, and usually do, invest in the United States. The pain comes from the real risk of a double dip into another recession.

Importance grade: 8. The U.K. economy is intimately tied to the U.S. economy. So the U.K.’s GDP figure does reflect a continued recessionary environment around the world and potentially in the U.S., too.

Jason