Winter is ending and green shoots are appearing – in the economy too, apparently. A flurry of improved economic data has fuelled hopes that we can begin looking forward to a recovery. British house prices ticked up for the first time in 17 months on the Nationwide survey in March, while mortgage approvals rose to an 11-month high of 38,000. The Chartered Institute of Purchasing and Supply surveys covering construction, manufacturing and services all improved in March, with the latter rising to an eight-month high. Manufacturing production slipped at its slowest pace for six months in February.
The Bank of England has reported that lenders now expect to raise the amount of credit they supply over the next three months. “In the absence of another huge financial shock”, a recovery “looks quite probable” in the second half of 2009, said Anatole Kaletsky in The Times.
Economy getting worse more slowly
Some perspective is in order. We’re mostly dealing with just one month’s data, and upticks that soon dissipate are common in downturns. The last housing bust, which lasted six years, saw 22 instances of month-on-month house-price rises, said Roger Bootle in The Daily Telegraph. Approvals are still less than half of levels consistent with rising house prices. First-time buyers have been frozen out by the clampdown on lending conditions and houses are still overvalued. The decline in house prices is far from over.
The slower pace of decline in factory output still leaves overall industrial output down 5.8% in the three months to the end of February, compared with the previous three months – the sharpest fall since 1974. Meanwhile, with unemployment rising and bad debts mounting, bank lending is “unlikely to get back to levels required to produce decent rates of economic growth in the foreseeable future”, said Capital Economics. All in all, the simultaneous pick-up in a relatively wide range of data suggests we may have “passed some sort of low point”, but these are “modest” improvements, which don’t point to a recovery any time soon. In short, while we may not be falling off a cliff anymore, we’re still sliding down a hill.
What next?
The “rate of recession” is likely to ease, agreed the National Institute for Economic and Social Research, which expects a 1.5% slide in GDP in the first quarter compared with 1.6% in the fourth. GDP has already shrunk by 4.5% in this downturn, it estimates. The rate has so far followed the trajectory of the 1979-1983 recession (see chart). Note too that, as Roger Bootle pointed out, consumer spending, which accounts for the lion’s share of the economy, has only just started to turn down. The ongoing slide in house prices, consumers’ whopping debt loads and low savings rates means that consumer retrenchment could have a long way to run. As Capital Economics said, “we are still closer to the start of this recession than the end”.