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OECD predicts Britain in recession

The think-tank estimates growth for Q1 2012 to be -0.1 per cent, putting Britain in a technical doub

The Organisation for Economic Co-Operation and Development (OECD) has released its interim economic outlook, an analysis of the economic conditions of its member nations, and it estimates that the UK is back in recession, with the economy contracting by -0.1 per cent in the fourth quarter of 2012.

The UK would join Italy as the only two coutries in the G7 to be back in recession, although unlike Italy, the organisation expects us to have positive growth in the second quarter of the year, albeit by only 0.125 per cent; this and the low levels of shrinkage expected mean that the recession is "merely" technical.

The OECD also note that the uncertainty around short-term economic forecasts has been decreasing in many countries but has actually increased in Britain, with the spread of forecasts now wider than it averaged between 2000 and 2010.

In addition, this report was put together before the government managed to spark limited panic buying of petrol thanks to a botched warning over the effects of a strike of tanker drivers. The effect of this will be unknown for quite some time, but with the expected shrinkage very minor indeed, it would not take much to tip the economy from recession to stagnation. It still wouldn't look great, but that 0.1 per cent can make all the difference to the government and their opponents.

The report also highlights the convergence of Euro area unit labour costs (see chart). This is the measure of the labour cost required to produce one unit of output; due to lower mechanisation and less efficient working practices, unit labour costs have been historically much higher in the European periphery. Greece in particular has been a target of much opprobrium for their low labour productivity (often mischaracterised as "lazy Greek workers"), and a declining unit labour cost will help them regain some of their export market, which is crucial if they are to begin their recovery.

The downside to the declining labour costs is that it does not yet reflect a boost in the efficiency of workplaces, or a "Germanisation" of Greece and Spain; rather, it is partially due to both slashed wages (Greece even introduced "negative pay" for certain public sector workers last year, requiring them to return a portion of an earlier month's wages to keep their jobs) and massive layoffs in uncompetitive industries. Even if there is no other way to ensure the stability of the European economy – and many Greek employees would probably prefer Greece leaves the European economy if it means they can keep their jobs – the pain won't be pleasant.

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