Friday, February 25, 2011
Implausible GDP figures
Posted by David Smith at 05:00 PM
Category: Thoughts and responses

The Office for National Statistics had an opportunity to produce a more realistic set of gross domestic product figures for the final quarter of 2010 and, in typical ONS fashion, gave us something even more unrealistic than its first estimate.

Is it plausible that, after growing since the final quarter of 2009, and particularly well in the second and third quarters of 2010, the economy shrank by 0.1% - taking out the weather effect - in the fourth? In circumstances like this you look for explanations.

Was it the tightening of fiscal policy? No, apparently government spending provided the only support for the expenditure-based measure of GDP in the fourth quarter. Was it monetary policy? No, at the time there was no hint that the monetary policy committee was starting to move towards a rate hike.

So the ONS is telling an implausible story. As I wrote after the first estimate, a plausible picture is that growth slowed to an underlying 0.5% in the fourth quarter and was knocked back to minus 0.5% (now minus 0.6%) by the weather.

Details of the GDP figures are here. Also worth looking at the monthly service sector data, which showed a 1.3% fall between November and December. On the basis of 2009's experience, also before a VAT hike, service sector output rose between November and December. Details here.