Does a technical recession really matter?

We are balancing on a knife-edge, but it doesn't matter where we fall.

Today, NIESR release their growth estimates. They will either chime with the OECD's figures from last week, and show us narrowly entering a technical recession (defined as two straight quarters of negative growth), or they will be more like this week's vaguely positive PMIs (for construction, services and manufacturing) and show us narrowly avoiding one.

As we approach the release of the official figures – on 25 April – more and more estimates get released, and the same story will come again and again (we won't be immune, either), until finally the ONS finishes the whole thing off in a quivering mass of statistics.

The problem is, distinction doesn't really matter. Actually, that's not quite true; to the political realm, it matters a great deal. It's the difference between Labour being able to tar Osborne as the chancellor who brought us back into recession, and the chancellor who just dampened the recovery. One might be remembered come the election, the other will probably be forgotten.

But in terms of what the figures actually mean, rather than how they can be spun, the most important thing to remember is that neither 0.1 per cent shrinkage or 0.1 per cent growth are actually very good. In fact, they are both abysmal.

The Touchstone bloggers have three good posts addressing just this; Duncan Weldon, quoting Paul Krugman quoting George Bush, calls it "the soft bigotry of low growth expectations." He writes:

We find ourselves in a ludicrous situation whereby the success or failure of the government’s economic policy is being measured, by many, almost entirely in terms of whether we have two back-to-back quarters of negative growth or not.

The BCC releases a quite gloomy forecast and many are prepared to call it ‘good news’.  

I’ve pointed out before that even if the economy grew by 1.5% in 2012 – twice as much as the OBR have predicted – this would still be a bad result. But expectations are so diminished that the Government might get away with hailing this as a success.

There is also the worry that, by redefining success to mean "not in recession", we are creating a self-fulfilling prophecy. If people think that growth is naturally low, they plan for and create low growth. Weldon quotes from Krugman's book The Return of Depression Economics (addressing Japan):

Analysts tended to assume that because the economy grew so slowly for so long, it couldn’t grow any faster.

Richard Exell adds that the PMI figures, although positive, are also well below what was normal before the recession (and the ONS figures, released as I write this, are even worse than that).

Jonathan Portes pointed out another pernicious side-effect of this rhetoric in March, after the budget. If the narrative that "the path of recovery is likely to be arduous, long and uneven" is accepted uncritically, then there will be a huge amount of unnecessary pain. It's not just that we won't grow fast enough. It's that measures to boost employment, invest in infrastructure and fix our broken housing situation are being wrongly dismissed as too expensive for a slow growth economy, when it is precisly those measures which will speed up the recovery.

Andrew Sentance proposes one solution: stop focusing on the technical definition of recession. It creates confusion, hides some problems and exaggerates others. By focusing on more important indicators, like unemployment, business activity, and a less volatile measure of GDP, success can no longer be defined as merely not failing. If that were the case, we would all benefit.

Could the fuel panic have pushed us out of recession? Does it matter? (Getty)

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Who will win in Manchester Gorton?

Will Labour lose in Manchester Gorton?

The death of Gerald Kaufman will trigger a by-election in his Manchester Gorton seat, which has been Labour-held since 1935.

Coming so soon after the disappointing results in Copeland – where the seat was lost to the Tories – and Stoke – where the party lost vote share – some overly excitable commentators are talking up the possibility of an upset in the Manchester seat.

But Gorton is very different to Stoke-on-Trent and to Copeland. The Labour lead is 56 points, compared to 16.5 points in Stoke-on-Trent and 6.5 points in Copeland. (As I’ve written before and will doubtless write again, it’s much more instructive to talk about vote share rather than vote numbers in British elections. Most of the country tends to vote in the same way even if they vote at different volumes.)

That 47 per cent of the seat's residents come from a non-white background and that the Labour party holds every council seat in the constituency only adds to the party's strong position here. 

But that doesn’t mean that there is no interest to be had in the contest at all. That the seat voted heavily to remain in the European Union – around 65 per cent according to Chris Hanretty’s estimates – will provide a glimmer of hope to the Liberal Democrats that they can finish a strong second, as they did consistently from 1992 to 2010, before slumping to fifth in 2015.

How they do in second place will inform how jittery Labour MPs with smaller majorities and a history of Liberal Democrat activity are about Labour’s embrace of Brexit.

They also have a narrow chance of becoming competitive should Labour’s selection turn acrimonious. The seat has been in special measures since 2004, which means the selection will be run by the party’s national executive committee, though several local candidates are tipped to run, with Afzal Khan,  a local MEP, and Julie Reid, a local councillor, both expected to run for the vacant seats.

It’s highly unlikely but if the selection occurs in a way that irritates the local party or provokes serious local in-fighting, you can just about see how the Liberal Democrats give everyone a surprise. But it’s about as likely as the United States men landing on Mars any time soon – plausible, but far-fetched. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.