GDP above pre-crash level; strongest growth in G7

Today’s figures from the Office for National Statistics show growth of 0.8% in the second quarter of 2014, bringing UK GDP above the level it was before the 2008 crash.

With GDP 3.1% higher than a year earlier, the UK has the fastest growing economy in the G7.

Cheif Secretary to the Treasury, Danny Alexander comments

Today we are passing a major milestone on the long road back to full recovery. There is still a long way to go but Britain has recovered the economic ground lost under Labour and is forging ahead.

The main reason that we stepped forward to form the coalition was to sort out Labour’s economic mess and rebuild a stronger economy and a fairer society for the future.

By forming the coalition we gave the country a long term economic recovery plan based on Liberal Democrat values and policies and the stability to see it through.

Because we have taken the difficult decisions to stick to that plan we are now seeing strengthening growth and the creation of record numbers of jobs.

Growth and job creation, combined with rising business investment is the only way to deliver the higher living standards that the families of Britain deserve.

This is worth contrasting with Labour’s predictions of a “lost decade” of growth, which alongside their predictions of a million extra unemployed show a stubborn refusal to understand what a stronger economy needs or acknowledge their responsibility for what went wrong.

* Joe Otten was the candidate for Sheffield Heeley in June 2017 and Doncaster North in December 2019 and is a councillor in Sheffield.

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  • Four years after the coalition inherited a growing economy we finally reach recovery in GDP alone (GDP/capita is still down) and this is supposed to represent a victory for their economic policy? I hate to think what doing badly would look like!

  • We should be cautious in claiming credit for this. Let’s be honest, the economic policies have been Tory, not Lib Dem.

    National debt has pretty much doubled, and we have another housing bubble which feels more inflated than the one pre 2007.

  • Charles Rothwell 25th Jul '14 - 10:59am

    The basic problem in electoral and social terms remains, however, that the benefits are not being spread equitably in geographical and social/demographic terms and that (as Vince Cable has pointed out, as also did Tim Farron in his SLF speech), far too many of the “new jobs” are very poorly paid and far too insecure with such dodges by too many employers as zero hours contracts and “freelance” employment status. I fear that the Greens’ announcement yesterday of a policy of a 1% tax on those “with assets in excess of £3 million” will grab more attention from former LD supporters who used to support the Party’s more egalitarian stance (infantile as the Green stance is, ignoring the fact that assets can be transferred at the click of a mouse button to taxation safe havens and that the LD policy of a tax of mansions (which cannot (yet!)) be so transferred makes infinitely more sense) (or perhaps the Greens want to abolish the internet as well?) Meanwhile, at the other end of the electoral spectrum, continuing uncertainty and low wages breeds the discontent and simplistic nostrums of the Kippers (who, according to Lord Ashton’s tweet this morning) overtok Labour in a byelection in DONCASTER (Ed Milliband’s ‘back yard’!) (The Greens also came from nowhere to grab nearly 6% while no LD was standing). If we just retreat to the South West and areas where there are sitting MPs and do not go all out for reestablishing ourselves as a national party committed to a “fairer society” for all, we could well be going the way of the German FDP.

  • Last year my retired neighbour and I used to go out on a sunny day and mow our lawns. This year we thought we would try a different way. So I mow his lawn and charge him £10, and he mows my lawn and charges me £10.
    Looks like it’s paid off. We’ve increased the employment hours worked, increased the velocity of money, and added to the service sector GDP figures.
    What’s not to like about GDP figures based on pretend, plus a few billion injection of QE fairy dust?

  • Paul Pettinger 25th Jul '14 - 11:27am

    Today’s GDP figures are testimony to the hard work and determination of businesses and employees. Britain’s sluggish productivity growth – which I note the SLF tried to directly address (and Nick Clegg then tried to prevent!) at Glagsow Conference last year – should be of great concern to us all.

  • Joe – are you absolutely sure you want to take the credit? Remember the hubris of Brown’s claim to have ended boom and bust? If another crash is round the corner we will look very silly.

  • So, with the UK economy larger than it has ever been in history, the lion’s share of the comments here are a mixture of gloom and an argument for not wanting to be associated with the fastest growth in the G7. And we wonder why we’re on single digits in the polls.

  • Stephen Campbell 25th Jul '14 - 12:52pm

    What recovery? Those at the top and on high wages may be feeling more optimistic and getting richer through QE and the housing boom, but for those of us on low and middle wages, there’s no recovery to be felt. For most of us, wages are stagnant, we’re having to work more for less, food banks are proliferating everywhere, etc. And even though most average people are seeing no improvement, we’re supposed to be grateful that the richest are still doing well and that this “recovery” has come off the backs of the poorest in society. The economy may be “stronger” for those who are already comfortable, but our society is definitely not a “fairer” one.

    I guess people like me are just supposed to wait patiently for the wealth to “trickle down”, right? I’ve been waiting 30 years for that to happen…

  • Yes the Kippers took a seat off Labour last night, but the Liberal Democrats took the Staplehurst seat off the Conservatives by just SIX votes, from third place.

  • Stephen Campbell 25th Jul '14 - 1:15pm

    @Joe Otten: “The narrative that all the pie is going to the better off is a political line, written 4 years ago, without regard for any evidence.”

    Well then I must be imagining the fact that most people I know have no had pay increases for years (let alone above inflation ones), that our rents have increased, the price of food and other essentials such as power have not gone down, that I see people who are in work needing food banks. Sure, things are probably great for the comfortable middle classes in the South East with their buy-to-let and help-to-buy properties increasing into a bubble, but outside those comfortable confines, I see and feel no recovery. In fact, things have gotten worse for me and those I love during this government’s time in office.

    The fact remains: millions of us are feeling no recovery whatsoever. You can quote statistics and abstract talking points all you like, but this is not a recovery for all.

  • @ Paul Pettinger

    Yes, productivity dropping is an issue, but its actually the result of companies holding onto their staff. In previous recessions companies laid people off when they had orders for less products, in this recession more people have been kept on as people have accepted pay cuts. Unusual, didn’t happen in the 70’s or 80’s when we got mass unemployment, especially in the north.

    So a company that made 100 million widgets in 2008 now makes 90 million widgets in 2013 with the same staff. On the face of it their productivity per employee has dropped. These people haven’t got thicker or lazier, they people would be just as productive if their was demand for their products.

    I’d expect productivity to rise a lot as the recovery takes hold, we’ve got more graduates than ever and a more flexible workforce. Business investment is on the rise significantly. As the orders come in from this we should see a big rise in productivity.

  • Joe Otten 25th Jul ’14 – 12:59pm
    Stephen, on the most recent figures the UK Gini index is at its lowest for 25 years.

    Fair point Joe, but look at where the share of wealth is at – the top 1% own as much as the ‘bottom’ *55%* put together! Also in 1981 the wealthiest 10% of households had 3 times as many rooms in their homes as the poorest 10%. By 2011 it was 5 times, god knows where it is now. Makes you wonder if we really need more houses or need to use what we’ve got more effectively…

    Worth a read this book, very depressing though

  • I guess people like me are just supposed to wait patiently for the wealth to “trickle down”, right? I’ve been waiting 30 years for that to happen…

    You might have been better off climbing the ladder to where the wealth is, rather than just waiting for it to come to you.

  • we’ve got more graduates than ever

    Though a greater proportion than ever are from joke ‘universities’ with ‘degrees’ that aren’t worth the paper they are printed on. So it’s not all good.

  • Little Jackie Paper 25th Jul '14 - 2:19pm

    Dav – ‘You might have been better off climbing the ladder to where the wealth is, rather than just waiting for it to come to you.’

    Absolutely. You can smell where the sweat of labour soaked into the houseprice inflation wealth.

    As for the rest. We still have equity stakes in banks held. QE has not been unwound. We are where we were on these points. The generational divide in particular is gaping hideously. There is good stuff here – but no one should get carried away.

  • Little Jackie Paper 25th Jul '14 - 2:22pm

    Gareth Wilson – the more interesting one would be a comparison of the ratio of wages needed to pay a mortgage over time. I’m not aware of anywhere that stat is held.

    With Buy-to-Let we have ended up with BTL servitude for the young and the property owning democracy for the boomers.

  • Bill le Breton 25th Jul '14 - 2:38pm

    This is indeed good news. But some honesty is required. The original forecast at the time of the Coalition’s first budget (which saw an acceleration in planned deficit reduction underpinned on a theory that austerity would be expansionary) was for the economy to reach this level of GDP in 2012.

    That did not happen and by 2012 the Coalition was having to do a U-turn on the pace of deficit reduction.

    Something delayed recovery. It is argued that this was recession in Europe. But the expansion we have seen since the end 2012 has taken place against a Europe remaining under the cosh (of the European Central Bank). [France is not free to do what we have been free to do.]

    So, what else changed? In November 2012 the appointment of a new Governor of the Bank of England was announced. He was to take office in July 2013, but his likely approach of forward guidance was well know (especially to Osborne who must be given credit for the appointment). He backed it up with a speech on Guidance in December 2012): a fulsome commitment to keeping monetary policy stimulatory.

    Almost from that day of the announcement of Mark Carney’s appointment, Nominal GDP has been rising at around 5-6% and has delivered increasing real growth building up to over 3%.

    Of course at the time of the 2010 budget Cameron spoke of accompany it with ‘aggressive’ monetary policy. But this never happened until the expectations of what Carney would deliver materialised. Before that people didn’t believe it and who could blame them. In the summer of 2011 just as the economy was sliding back into recession there was nearly a majority in favour of an interest rate increase.

    This was a time when politicians should have given much firmer instructions to the Bank of England. That is what FDR did back in 1933 and it is what the Prime Minister of Japan did in 2012/13.

    When finally in the 2013 budget Osborne finally gave the new Governor every encouragement to be more experimental in support of monetary expansion he was ‘catching up’ after the shock of the persistent slump.

    If we had targeted 5-6% NGDP growth in 2010 (it was then growing at 5%), we would have reached where we are now in the summer of 2012. Those two wasted years have been unbelievably expensive – see how the National Debt has risen because of that by £200 to £300 billion, how many life chances have been lost, how many opportunities wasted.

    But what is important now is that we make sure this trend of around 5% growth in NGDP a year is maintained. It would be that stability which would underpin business confidence and business investment. The Governor may yet need help keeping his hawks at bay. It is the Central Bank that determined that level; pure and simple.

  • There are plenty of legitimate concerns about the British economy, with the present growth rate being more an effect of how deep the recession was than of any particular policy. There’s also the point about the recovery being based on yet another artificial house price bubble and unsafe levels of personal credit, with its own crash prebuilt into the not too distant future.

    We can be hopeful that the proceeds of this bubble can at least be invested somewhere sensible before it breaks down again, and we can point to the influence that our ministers in areas like BIS and Energy have had in driving recovery in other sectors, but I would rather we left dumb triumphalism to the Tories. That kind of messianic posturing tends to put people off anyway.

  • Little Jackie Paper 25th Jul '14 - 3:03pm

    TJ – you talk about unsafe levels of personal debt. In fact there has been a significant deleveraging of households under the coalition. See

    In fact I am at something of a loss as to why the coalition has not talked about this more often because it is a very positive trend. It is, almost certainly in part a reflection of low interest rates – however these figures would at the very least suggest that the, ‘windfall,’ of low rates has not been squandered.

  • Paul Pettinger 25th Jul '14 - 3:07pm

    @ Gareth Wilson
    Unemployment rates have also been a product of greater flexibility in the labour market, which is to be welcomed – a shame we don’t have more of it in housing and that intergenerational inequity has got more severe. I also hope productively rises a lot, but we have been set back by years of underinvestment – a lot less than there could have been

  • Paul in Wokingham 25th Jul '14 - 3:40pm

    I would be very interested in figures to show the impact of PPI payouts on GDP.

    While the figures showing increased GDP are to be welcomed the fact remains (as many people including George Osborne have noted) that the growth is driven by consumers and The City. Exports to the EU have been basically flat for the last year while exports to non-EU countries have fallen steadily for the same period.

    The eurozone remains in recession with the spectre of deflation hanging over it. And Japan has stalled after the sugar boost of early Abenomics.

    If debt is not increasing then a consumer-led rise in GDP must be accounted for either by burning through savings -which would be understandable in the ongoing ZIRP regime – or other sources of income, hence my query about PPI.

  • Yet in my supposedly prosperous area of South Wales a Food Bank has opened. I expect the millionaires round here have done very well.

  • David Evershed 25th Jul '14 - 4:38pm

    As Chief Secretary to the Treasury, Danny Alexander deserves as much credit for the recovery as the Chancellor.

    When growth did not materialise as quickly as hoped, the Lib Dems argued against faster cuts to compensate. As a result the further reduction of the deficit has beendelayed but it has meant unemployment has continued to fall and good growth has returned.

    There is still a very long way still to go to get the deficit eliminated and even further to get the accumulated debt to a manageable level relative to GDP.

    In my view it will take another 10 years of hard graft before the damage of overspending by the Labour Government will be put right. Because of the difficult decisions to be made about cuts over this period, a coalition government would help to get more public acceptance than otherwise would be the case

  • David Evershed 25th Jul '14 - 4:57pm

    Little Jackie Paper25th Jul ’14 – 2:22pm

    “Gareth Wilson – the more interesting one would be a comparison of the ratio of wages needed to pay a mortgage over time. I’m not aware of anywhere that stat is held.”

    You will find this data summarised at

    It shows that mortgage payments as a percent of income were 20% in 1988 but fell to around 16% when interest rates were reduced in 2009, which is where they have stayed.

    So low interest rates have been very helpful during a tough economic period. The B of E has only been been able to set low interest rates because government policy has provided market stability in the pound sterling. If the pound had collapsed, inflation would have soared and interest rates would have to have been raised.

  • Julian Critchley 25th Jul '14 - 6:07pm

    Hope this link works. If so, it might explain why both Tories and LibDems may find it hard to translate these figures into votes.

  • Eddie Sammon 25th Jul '14 - 7:16pm

    We need an emergency budget to stop another financial crash and Mark Carney needs to somehow increase rates by 0.25% to stop this pro live-for-today economic madness.

    All the signs are there. The IMF is panicking with the chief economist saying the opposite to the managing director, PwC are warning of a bottle-neck, banks are facing huge competition from things like peer-to-peer lending and aren’t receiving enough money from account fees.

    The approach of “sounding positive to boost confidence and hope for the best” isn’t enough, it is time to panic and introduce an emergency budget before the market panics before us. We also need to protect the vulnerable in the budget.

    It’s good news that the economy is growing, but I can’t help but think the bigger the boom the harder it falls, at the moment.

  • Little Jackie Paper 25th Jul '14 - 7:29pm

    David Evershed – Thanks for that link, but I was inarticulate. What I meant was that in 1972 my dad on one production line wage could pay the mortgage on a house. i.e a ratio of 1:1 wage to mortgage. At the moment, my wife and I both need to work to pay the mortgage. ie the ratio is 1:2. There is a BTL down the road rented out to a family where I would guess the ratio is about 1:7 depending on exactly what the landlord creams off, how many earners there actually are, how many full time/part time etc. What I was looking for was how many wages does it take to pay the mortgage. But certainly your link looks in tune with my earlier link which suggests low interest rates have not been wasted by many (though there will probably be some regional variation in there).

    ‘government policy has provided market stability in the pound sterling. If the pound had collapsed, inflation would have soared and interest rates would have to have been raised.’

    That is a joke right ? Post QE sterling is a toilet paper currency, and that is being polite. In 2001 I went to my wife’s country and got 91 of the local currency to the pound. Last year I had to haggle them up to 60. If you want some idea of the inflationary effect of this I suggest you look at your energy bills for example. Both Labour and Coalition have trashed our currency.

  • Little Jackie Paper 25th Jul '14 - 7:31pm

    Eddie Sammon –

    ‘We also need to protect the vulnerable in the budget.’

    Would you be so kind as to elaborate on this?

    ‘It’s good news that the economy is growing’

    A bigger economy does not mean economic growth is present – that’s the problem in the UK.

  • Eddie Sammon 25th Jul '14 - 7:56pm

    Hi Jackie, what I’m saying is an emergency budget can’t just be seen as an excuse for the rich to take more power. I’ve thought about whether being pro business and sounding confident is enough, but it isn’t, because the US Republicans had a massive crash on their watch and so did New Labour.

    I’m not making this thread about my idea, I just think it would send a good signal to the world if it looked like we were serious by getting rid of inefficiencies and correcting mistakes, rather than basking in our own glory and relying too much on confidence. Lots of things can kick off a crisis, foreign policy, natural disaster, lots of things, so we need to be prepared.

  • Little Jackie Paper 25th Jul '14 - 8:02pm

    Eddie Sammon – ‘what I’m saying is an emergency budget can’t just be seen as an excuse for the rich to take more power.’

    Well…OK – With respect I also like motherhood and apple pie. Who are your, ‘vulnerable.’

  • Eddie Sammon 25th Jul '14 - 8:15pm

    Jackie, I don’t think this is the right thread to post my manifesto. An emergency budget to secure the recovery – let’s do it.

  • @Simon Shaw – French GDP recovered to 2008 levels (in real terms) back in 2011. It is now 1.2% ahead of 2008 levels – and has grown to a higher level relative to pre-recession levels than the UK has. There are some useful facts on GDP at

  • @Simon Shaw – while we’re at it, the French record is also not as bad as ours on real per capita GDP levels – where they are indexing 98.6 vs 2008 and we are indexing 95.3.

  • I was looking for LibDemVoice but from many of the comments above, I rather think I have ended up at Conservative Home….

  • MartinB – ‘I was looking for LibDemVoice but from many of the comments above, I rather think I have ended up at Conservative Home….’

    Nope, just 2014 Lib Dem views.

  • Tony Rowan-Wicks 26th Jul '14 - 8:56am

    I’m not getting the ‘fairer society’ part at all. LD parliamentarians have been totally overwhelmed by Tory proposals – and [many not all] voted for UNFAIR legislation. Agreed there are U-turns coming. But I don’t buy into the statements that we are in a Coalition Agreement about the unfair legislation – there was no prior agreement within the Party on any of the unfair legislation which Cameron pushed through. All LDs, including parliamentarians, should have stood against the Tories in all unfair legislation which was not in the agreement. So, I presume the ‘fairer society’ refers to the new policies we are going to bring to the next GE – after which we are unlikely to enact them in parliament.

  • I can see why the appearance of a recovery is important for politicians facing an election in 10 months, but the real questions are :
    Do the voters believe it? [i.e. the recovery] …and
    Will the illusion of recovery hold together until May 2015?

  • Given that most of our major competitors returned to pre-crash levels several years ago, it’s extraordinary that Lib Dems think this “achievement” is something to crow about.

  • @Simon Shaw One more thought for you. The crazy socialist French – aside from leaving recession earlier than the British – also have a smaller deficit (4.3% of GDP, vs 5.8% of GDP).

  • @tony b

    Yes, it’s almost identical to that being spouted by Osborne, Cameron et al.

    Extraordinary to see such co.omplete capitulation to the tory brand by a party that would have had to be dragged kicking & screaming into any such suggestion a mere 5 years ago. It really is no wonder their standing in the polls as well as by-elections has slumped to what is probably it’s lowest ever.

  • A question please if GDP is now at 2008 level how much higher should it be with inflation and growth and as for productivity is it a shock with such a huge workforce now.

    Good news but would be better if we saw better distribution of the benefits that growth brings

  • Paul in Wokingham 26th Jul '14 - 4:34pm

    Actually I seem to have found the answer to my own question about the effect of PPI on GDP. In an article on the BBC website in January 2014, Robert Peston says that about £12 billion was paid out over 18 months, equal to 1% of GDP. I have seen other data suggesting that little of that money has been saved, but that instead it has been used for immediate purchases, and Peston agrees.

    He characterises it as “helicopter money” (whither Ben Bernanke?) So not dissimilar to the sort of proposal seen on this forum from Geoff Crocker. Of course one problem is that PPI runs out soon…

  • @Simon Shaw I’m looking at the French GDP figures for the disaster you say I should be seeing across the last two years and I’m just not seeing it. The OECD shows them continuing to grow. Maybe you have some super secret facts that don’t resemble any of the published ones? And despite a crazed socialist government, their deficit fell by more between 2012 and 2013 than ours did. What’s the point you’re making here (apart from your inability to check figures before making an argument).

  • Richard Dean 27th Jul '14 - 2:11pm

    The Eurostat data under the tab called “Table” that Martin Tod links to seems to show this:

    French deficit reduced by 0.6% of GDP from 2012 to 2013 (reduced from 4.9% to 4.3%)
    British deficit reduced by 0.3% of GDP from 2012 to 2013 (reduced from 6.1% to 5.8%)

    Looks like the French are doing better both on the magnitude of the deficit (around 4.6% compared to around 6%) and in the amount by which it is being reduced (France reducing by twice as much).

    The magnitude is a measure of the historical legacy, which was worse in the UK. The amount of reduction is a measure of the associated damage and the success or otherwise of the government in repairing it, which was also worse in the UK.

    The green bars on the “Graph” tab seem consistent with this too.

  • @Simon Shaw Apologies. I tend to look at numbers rather than pictures to assess trends. We’ll just have to agree to differ. I’ll stick to numbers. You look at pretty pictures.

    I’m not arguing anything about the French socialist government. I’m trying to some facts into the argument.

    You argued that the French government is a catastophe. Is this because they are cutting the deficit faster than we are perhaps? Or is this, by some clever intellectual process, excluded from your diagnosis of ‘catastrophe’?

    I just pointed out that over the period that they’ve been in government that are still showing real growth in GDP. Not very much growth, but still growth. This compares to the period before they came to power – when the growth record was also pretty unimpressive. There’s no massive change pre- and post- having “mad socialists” in power. This suggests that there may be bigger, more strategic, issues facing the French economy than just ‘mad socialists’ taking over in April 2012.

    Just for the record, the OECD show growth in French GDP since Q2 2012 (when Hollande was elected) of roughly 0.7% (not very impressive, but growth nonetheless). The Q4 2013 GDP indexed vs. the 2008 average was 101.2. – the highest figure on record. This compares to the Q4 2013 real GDP for the UK indexing 100.5 vs the 2008 average and 98.5 vs the previous Q1 2008 peak. After two good quarters, we are now indexing 100.2 vs. the previous peak – not particularly overwhelming evidence that the UK Government are wildly better managers of their economy than the French. And if, as some suspect, this is partly driven by a re-inflating housing bubble in London and the South East, no real cause for us to relax and start being complacent about the state of the economy.

    It’s also worth noting that the French are significantly ahead of us in per capita GDP trends (although neither country is great at this – they’ve just declined a bit less than we have). One reason why, as a party, we need to avoid being too triumphalist is that per capita GDP figures are well behind the 2008 peak and a big contributor to our GDP growth is population growth from immigration.

    Now you can go back to looking at your pretty pictures and intellectual fantasies.

  • @Simon Shaw
    “But bearing that the last Labour Government presided over the largest reduction in GDP of any of the G7 countries in the period up til the start of 2010”

    Really? According to the OECD data in the following document, Japan, Italy and even Germany all suffered greater contractions in GDP than the UK. According to my maths that means we had only the fourth deepest recession of the seven G7 countries :-

    “(as per that last graph I linked to),”

    You have not linked to a graph. You have linked to a Google image search which doesn’t seem to include the graph you describe.

    “It happens that the UK suffered a far more severe recession under the Labour Party until 2010,”

    Not only was the UK recession less severe than in other countries, but it actually ended before the end of 2009. By the time the coalition came to power, the economy was well in to the third of four successive quarters of growth. The coalition then dragged the economy back in to recession, hence the fact that our return to pre-crash GDP levels occurred about three years after many of our competitors and two years after the coalition’s forecast. So when you say that “the economic achievements of the Government of which we are part have been outstanding”, I can only assume you mean outstandingly awful.

  • Of course I don’t.

    I also don’t think the French economy has done particularly well over the period of any recent French non-socialist government either.

    I also happen to think that picking one country that’s performing poorly in a very different economic situation and comparing it to the UK and drawing huge conclusions about the right economic policy for the UK is embarrassingly simplistic. Not least (for example) when it’s doing something that austerity nuts would like the UK to be doing (i.e. cutting the deficit faster than we are) and appears to be suffering for it.

    In addition, I’d be far more interested in an analysis that wasn’t based on crowing about why France was crap – asked what we should be doing to catch up with the US, Germany and Canada – who are, in relative terms, miles ahead of us and not falling back from being miles ahead of in GDP to just being in line with us (France).

  • @Simon Shaw
    “Of course there are all sorts of factors which affect the outcome, so it is not sensible to read too much into the results, but it does seem to me that the Socialist approach has not succeeded, at least in comparison to the approach that we have supported in Government in the UK. I think that is a perfectly reasonable stick with which to hit the British Labour Party.”

    Even if one accepts your premise that the French socialist government has been unsuccessful, there is a point you are missing. The socialists have been in power in France for just two years. To make the comparison fair, just how well was the coalition doing economically as of 2012?

  • Bill le Breton 29th Jul '14 - 10:55am

    Calling Paul in Wokingham – never understood your bias against monetary policy in a background of deflation/at the ZLB. Japan’s jobless rate in Q2 at its lowest since 1997. Will a tighter labour market generate higher inflation? #BoJ

    Hope this provides link to chart – we shall see.

  • Paul in Wokingham 29th Jul '14 - 7:57pm

    Bill – that picture misses the most recent quarter where unemployment has started to rise again.

    There was a marked decline in retail sales after the April sales tax increase (from 5% to 8%). This explains the startling growth in GDP in the first quarter (+6.7% YoY) – people will making purchases in ahead of the tax hike. And it also explains why GDP slumped in the Q2 (-3.8% YoY).

    If we look just at the sales tax increase, it has the intended consequence of pushing up inflation. But with the 10 yr JGB currently yielding about 0.5%, Japanese Government Bonds are not a good place to park money. Either bond yields must rise or domestic investors will look to liquidate JGB holdings and go chasing yield. The government is up to its eyeballs in debt and cannot pay a higher coupon – remember that debt-to-GDP is over 200%, famously reaching the QUADRILLION yen mark a few months back.

    I have some sympathy with Abe but you cannot escape a crisis that comes from an ageing population and a reducing export market by playing games with the monetary base. The Japanese Government Pension Investment Fund is the biggest in the world, and is about 50% invested in JGBs. Now how is that going to yield a return that will fund those pensions? And if it disinvests (which is unlikely) what does that mean for yield?

    Abe and Kuroda are battling with the tyranny of arithmetic. I don’t rate their chances. That big “reset” button is looking bigger by the day.

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