The new new normal

It says something about the state of the world economy that as of the latest data Britain was the G7’s fastest growing economy in the final quarter of 2016. With growth of only 0.5%.

And yet that is the world we now seem to be living in. One where growth is weak, where inflation is at zero or thereabouts and where no one is sure what to do about it.

Today’s GDP figures were unchanged from the first estimate, and for that matter unchanged from the last quarter. This was actually a bit more encouraging than you might have thought. A lot of the data from the manufacturing and construction sectors was suggesting that there might have been a cut to the headline figure.

However, a dive into the figures themselves underlines what’s going on here. In short: unbalancing, the opposite of the rebalancing George Osborne has frequently called for. As you can see from the chart below, while the services sector has grown relatively quickly since the crisis, the same could not be said for the other sectors of the economy.

Of course, there are a number of different ways of measuring economic growth. One is to look through the prism of businesses (the breakdown you can see in that chart above). Another is to look at the nature of spending in the economy. After all, national income is simply a calculation of how much we are spending and earning each year – the two should be the same since one man’s spending is another’s earning.

Here’s how the economy looks through the expenditure prism:

Note that in every recent quarter households are responsible for the large part of growth. Again, not the net exports that the Chancellor had hoped would increase.

Now, to some extent none of this is surprising, nor is it disproportionately worrying. Services account for 80% of UK growth. You would have expected them to remain the key contributor of economic activity. Similarly, household spending has long been the biggest driver of overall expenditure. But the fact is that the divide between them and other sectors of the economy is widening, not narrowing.

 Still, the good news is that at least GDP per capita is comfortably above its pre-crisis peak.
The problem is that the underlying imbalances and weaknesses of the economy have not been fixed. And, as I pointed out at the start, we are now in a world which looks more brittle than it has done for some time.