No more whingeing, please. The recovery is solid.

Last month saw some very positive economic news. The US Federal Reserve raised interest rates for the first time in over seven years.  The Bank of England reported on the major stress test of UK banks which it launched in March 2015.  It concluded that “the banking system is capitalised to support the real economy in a severe global stress scenario”.

Yet much of the discussion on the economy remains tinged with various hues of gloom.  We expect John McDonnell, the Shadow Chancellor, to be living in the past.  So it is not surprising that he has launched a “fight against austerity” with Yanis Varoufakis, the former Greek finance minister.  But many commentators seem to find it hard to believe that the recession in the UK is well and truly over.

Some argue that the recovery has taken place, but that it is somehow “unbalanced”.   True, manufacturing is struggling, with highly publicised plant closures in what have become effectively commodity industries, like steel.  But the data from the Office for National Statistics suggests a virtually textbook example of a sustainable recovery.

The depth of the crisis was reached in the spring and summer of 2009, and we now have the initial estimates for the economy for the same period in 2015.  GDP as a whole increased by £100 billion, after allowing for inflation, a rise of nearly 13 per cent.  Companies spent an additional £32 billion on new investment in 2015 compare to the same period six years ago.  In percentage terms, this was by far the fastest growing sector of the economy, up by 26 per cent.   In contrast, consumer spending grew by only 10 per cent, less than the economy as a whole.  It has been an investment-led recovery, with the role of public spending being negligible.

From a historical perspective, the recovery profile is better than it was in the 1930s, the previous time there was a major financial crisis on a world scale.  The economic historian Angus Maddison devoted his life to constructing the annual national accounts of the developed economies going back to the late 19th century, and his work has widespread academic credibility.  Peak output prior to the Great Depression was in 1929.  In his sample of countries, only just over a half had regained this level by 1937.   This time round, taking the same group of economies, 80 per cent of them had a higher GDP than in 2007.

The only area which really continues to struggle is the Mediterranean economies in the EU.  In Spain, output is 4 per cent lower than in 2007, in Portugal it is 6 per cent down, in Italy 9 per cent and Greece has seen a drop of no less than 26 per cent.  The crisis exposed deep structural problems with these economies.

In contrast, GDP in the G20 economies has risen by 24 per cent since 2007, the last year before the recession began.  And they account around 85 per cent of world output.  The economic discourse has become disconnected from reality.

Paul Ormerod

As published in CITY AM on Wednesday 6th January

Image:Yanis Varoufakis by Marc Lozano licensed under CC BY 2.0

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ELLIE EVANS

Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.