Growth – and the conditions for Osborne’s miracle

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So we supposedly have growth. But as Stephanie Flanders noted for the BBC:

Beneath that headline average, the strongest sectors have been construction, distribution, hotels and restaurants, and business and financial services. If the figures are right, output in the construction industry is now 11% higher than it was a year ago; the distribution sector is up 3.2%; and business and financial services have grown by 2.9%.

This is astonishing. Let’s ignore banking: we know it has grown on the back of quantitative easing. That’s the government stimulus they hijacked for their own benefit.

And distribution is hard to understand: retail figures are dire. There seems no real correlation there, and the change must be downward.

That leaves us with building. This is down to Labour’s spending programmes still in action, of course. There’s no other explanation. It’s spending on investment was high — and rightly so — and that ahs not stopped yet. But it will.

Looked at like that this growth is utterly unsustainable under a ConDem government — it is Labour’s gift to it, which they have already spurned.

And I’ve been looking at an unpublished paper by another BBC journalist — Paul Mason — for the New Political Economics Network, of which I am a member. As he notes in that paper:

Starting next year, spending cuts are a 0.7% of GDP headwind against growth, so they disappear as a contributor.

Business investment — which averaged 0.3% between 1999-2008, has to contribute 1.1% by 2013 and 14.

Net trade — which has been negative since 1999 — has to be contributing 0.5% by 2014 and indeed 0.9% in the next two years. (Source: OBR Supplementary Material to June 2010 Budget, Table 1.2)

In other words — business investment has to boom and against all precedents of recent history we have to become a net exporter.

The chance of that is, given that all nations are trying to boost exports and near recessionary conditions are almost universal in all our export partner nations, about as close to nigh on zero as I can state.

And if that does not happen then Osborne’s miracle won’t happen. Which is extremely scary indeed.

As scary is the fact that it is rightly pointed out that Labour is not as yet delivering real alternatives. And nor is there a theoretical one on any blackboard I know of.

Which won’t deter me from seeking to offer one, all the same.


I note the following by Gavyn Daveis on the FT blog agrees with me on this issue:

Construction output grew by 4.0 per cent in Q3, and this alone added 0.25 per cent to the level of output during the quarter, or 1.0 per cent to the annualised growth rate of the economy. Much of this came in the public sector, due in part to the lagged effects of Labour’s stimulus packages, and in part to a catch-up from the exceptionally bad weather in Q1.

Unfortunately, we can already see that this boost will be temporary, because construction orders have now turned negative. In fact, it would not be too surprising if this sector drags down GDP growth by around 0.5-1.0 per cent in coming quarters, thus eliminating much of the boost we have seen in the past two quarters.

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