Bigger boom, deeper bust, earlier recovery
The present is grim and the future is terrifying. But at least the distant past looks a bit brighter. That is the message from new estimates of Britain's GDP, released this morning. The statisticians made minor changes to the recent past but substantially rewrote earlier economic history. GDP in the first and second quarters was revised down a notch: the annual change to the second quarter is now a measly 0.6%, revised from 0.7%. But there were more chunky revisions to figures for 2007-10. In short: the economy was stronger going into recession, fell harder, and recovered earlier (and a bit more strongly) than previously thought.
The peak-to-trough fall in GDP during recession is now put at 7.1% from an estimate of 6.4% previously. The new figures suggest the economy was already deep in recession before the fall of Lehman Brothers in September 2008: GDP fell by 1.3% in the second quarter of 2008 and by 2% in the third quarter, much larger declines than had previously been estimated. The boom that preceded the recession was also "boomier" (to borrow a term from the former Irish prime minister, Bertie Aherne). The economy expanded in 2007 by 3.5%, well above the long-term trend, and higher than the previous estimate of 2.7%. There were also big changes to the figures for 2001-03, when GDP was revised up in each year by around 0.7pp.
The recovery from the 2008-09 recession started three months earlier and was a bit perkier than previously estimated. But this upgrade is not big enough to fully make up for a deeper recession. GDP growth was revised up by 0.4% percentage points (to 1.8%) in 2010, and by 0.5 pp in 2009; but that is cumulatively smaller than the downward revision of 1pp for 2008.
The revisions reflect changes to the way GDP is calculated, and take in new information on company profits derived from tax returns. The changes to the figures for 2001-03 are almost entirely down to the replacement of the retail-price index (RPI) by the consumer-price index (CPI) as the gauge to measure economy-wide inflation. Prices have risen more slowly on the CPI than on the RPI, so the new calculations reveal higher real GDP growth and lower inflation for a given level of cash spending in the economy.
The new figures clear up some puzzles. For instance, net exports made a bigger contribution to GDP growth in 2009 and 2010 than previously thought and consumer spending was weaker. That points to greater"rebalancing" in the economy and a larger effect of a weaker currency on the mix of spending. But the resilience of the jobs market (until very recently) is still hard to reconcile with a fairly sluggish recovery in 2009 and 2010. That suggests more upward revisions are likely. GDP figures (in Britain, at least) are always provisional. It takes years for the true picture to emerge.