The headline figure of minus 0.2% for economic growth in the first quarter of 2012 may be revised at a later date. It confirms that the economy is becalmed at best. It will doubtless lead to more demands from some to raise public spending and borrowing, to provide an additional fiscal stimulus. Readers should look more carefully at the underlying figures before rushing to such a false conclusion.
In the first quarter of 2012 government spending once again made a positive contribution to total output, contributing 0.2% real growth to the economy. Meanwhile construction, minining and quarrying fell sharply. It is interesting to look at the last five years of numbers, to see that over this period the government sector has been used to provide a large boost, but this has not offset the whole decline in total production industries output.
|Year||Change in Production industries||Change in government output|
|2007||plus 0.5%||plus 1.0%|
|2008||minus 2.8%||plus 0.4%|
|2009||minus 9.0%||plus 2.3%|
|2010||plus 1.9%||plus 0.7%|
|2011||minus 1.2%||plus 1.5%|
|Totals 2007-11||minus 10.5%||plus 6.0%|
These figures are all in real terms, adjusted for inflation.
So over the last five years government has provided a large stimulus to total output, but the manuafacturing and mining sectors fell dramatically in the Credit Crunch of 2008-9 and have recovered very little since. The issue we need to address is how to create a faster private sector led recovery. The government has spent massively to offset the impact of the economic decline, which has entailed very large borrowings. Borrowing even more would be counter productive, as the private sector woudl have to pay the interest on the debt and ultimately repay the loans. The issue is how to get faster growth in the private sector, which is about all the issues on banking, taxation, regulation, transport and enegry that we often discuss here.