3rd August 09 - Tracking the 1930’s
It is an amazing thing that according to Martin Weale of the National Institute for Economic and Social Research, the shape of the current recession in the UK is virtually identical to that of output between 1929 and 1931. The economy contracted by 5.6% in the year to end June 09 compared to 5.8% in the year preceding the second quarter of 1931. This means that the recession is far deeper than those of the early 1980’s and early 1990’s.
The fact that the rate of decline slowed markedly in the second quarter of 2009 (0.8% contraction of GDP versus 2.4% in the first quarter) has brought back into focus the issue of whether a return to growth could come sooner rather than later. Such prognostication is strengthened due to the fact that the financial crisis (as distinct from other causal factors) was much greater this time than in the 1930’s and so the fiscal and monetary measures taken ought to pay dividends relatively quickly.
The consensus amongst commentators seems to be against optimism. Michael Saunders, UK economist at Citigroup, said that although he expects growth to return in the third quarter, the recovery will be subdued. "As well as a deep recession, we expect a slow recovery, help back by high private debts and poor credit availability." Citigroup think that it will take until 2013 for the economy to reach the pre-recession peaks of 2008.
Of course, not many thinking people alive today can remember the 1930’s. The comparison of the curve is therefore largely irrelevant. As I write this entry, the FTSE has risen for a tenth straight day and the resultant 10.9% increase is the highest uninterrupted one since the index was set up in 1985. The stock market looks forward - not back. So that is ok then.
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