Our economic recovery is real, but what we can still learn from the US?

Some people are never satisfied.

The evidence is mounting that the UK economy is now on the path to recovery. But to those who denied the possibility of any economic revival at all under the policies of “austerity”, this is simply not good enough. It is the wrong kind of recovery, they say. Fuelled by debt-based personal spending, unsustainable house prices, another crash, the doom-mongering litany more or less writes itself.

The data-based evidence of the recoveries in the US and UK economies tells an interesting story, but not one that the pessimists like to hear. There is no doubt that overall growth has been weaker than usual after a recession. Comparing 2012 with 2009, the year when both economies hit rock bottom, real GDP grew by 7.3 per cent in the US and by only 3 per cent in the UK.

Still, growth has actually happened. But has it been fuelled by personal consumption, by individuals running down savings or taking on more debt in an unsustainable way? The answer is unequivocally “no”. Personal spending is by far the biggest single component of GDP, accounting for over 60 per cent of the total. But in both cases, over the 2009 to 2012 period, it grew by less than GDP. By less, not more. Personal consumption rose by 6.9 per cent in the US and by 1.6 per cent in the UK.

In both the main Anglo-Saxon economies, a marginal contribution to growth was made by an improvement in the net trade position. In each case, exports in real terms grew slightly faster than imports, though the impact on GDP was small.

But the two other components of GDP – investment by companies and current expenditure by the public sector – offer a marked contrast between the US and the UK. Despite the widespread belief that austerity policies are being rigorously pursued in the UK, current public spending grew by 3.3 per cent in real terms between 2009 and 2012. In the US, meanwhile, it fell by 4.1 per cent.

And contrary to much received wisdom, investment by companies in the UK did grow over this period – by just over 10 per cent. But in the US, the comparable figure was a rise of almost 30 per cent. Capital spending by companies makes up only around 15 per cent of total GDP, but this huge difference between the two countries accounts for most of the difference in the recovery patterns in the US and the UK. GDP grew by just over 4 per cent more in the US, and three quarters of this is accounted for by buoyant corporate investment. The growth rate of personal consumption relative to GDP was lower, not higher, in the UK than in the US, and this basically accounts for the rest.

In neither Britain nor America is the recovery based on flimsy, ephemeral debt-based consumer spending. It is grounded in capital investment by firms. And the US has made way for this by not just talking about cutting public spending, but by actually doing it.

Paul Ormerod

As published in City AM on Wednesday 28th August 2013

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

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.


Senior 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.