That rise in GDP could mean less than you think

Two little observations about economics and what we think we know about it.

  • The Office of National Statistics released its latest bulletin today, confirming that the economy had grown by 0.3% in the first quarter of 2010. Among the outpouring of comment on this is news piece by the . Towards the end of the clip, as he rides an ascending escalator, he explains: “if GDP is rising, that means the economy is expanding, and that means more wealth, and more new jobs.”

    A neat little explanation of what rising GDP is supposed to mean – except that  neither of those last two statements is true. In reality, unemployment rose by 0.1% during that same period. And since inflation is at 3% and wages have stagnated, we’re actually poorer in real terms.

    I like Declan Curry, but he needs to analyse his assumptions about GDP. There was a rather obvious question that neither he, nor any other journalist appeared to be asking yesterday: if we can have confirmed growth in the economy, but remain poorer and have fewer jobs, then remind me what’s so great about growth again?

  • In the detail of , I also found the answer to another important question I’ve been wondering about: just how much of our growth is government spending? As it turns out, government expenditure grew by 1.5% in the first quarter of this year. Thank goodness it did, because household consumption fell, and our trade deficit grew. In all, government spending was responsible for 0.4% growth in GDP.

    Since GDP growth was only o.3%, not only did the government account for all the growth in the first quarter, it offset the decline in other sectors. To put it another way, government spending single-handedly brought the economy out of recession.

    That puts a rather different perspective on those spending cuts.


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