Commentary: When plus can mean minus
Wednesday 01 July 1992
With the downgrading for this year, the independent forecasters are now predicting negligible growth of 0.4 per cent. This, though, gives a misleading impression of what is really expected. The figure refers to the change in the average level of gross domestic product between last year and this year. The sharp fall during last year meant that GDP at the end of the year was much lower than the average. There has to be an equally sharp rise during this year to stop the year-on-year comparison dropping.
Even if GDP were to grow by 0.5 per cent in each of the second, third and fourth quarters, there would still be a very small year-on-year decline because of the depressed starting point in the first quarter. Since such a steady rebound seems altogether unlikely, the real surprise is that the forecasters are expecting any growth at all on a year-on-year basis.
Part of the explanation for their apparent optimism lies in the time-lags: many of the forecasters have not produced new sets of predictions since the gloomy figures for the first quarter came out. Excluding all the forecasts prepared before June, the average growth rate comes down to a mere 0.2 per cent.
Even this looks too rosy, given the forecasters' record for deferring the starting point of the recovery every quarter. Yesterday's figures for the savings ratio - the proportion of income saved rather than spent - show a further rise to 11.5 per cent. People still want to play safe, which means there is only the weakest of motors for the recovery. What happens if output is flat from the first quarter onwards? The year-on-year comparison would show a drop of 0.8 per cent. Wonderful thing, arithmetic.
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