U.K. Recession Is Different than Ours

The Financial Times reports that the first quarter GDP for the U.K. contracted by 2.4% (9.6% annualized), revised down from the preliminary estimate of 1.9%. This contrasts with the U.S., where the first preliminary estimate for the first quarter was GDP down 1.525% (6.1% annualized) and ended up revised to a final figure of down 1.375% (5.5% annualized). The GDP decline for 1Q/09 was greater in the U.K. than for 4Q/08. In the U.S., GDP decline went the other way, being less in the most recent quarter than the quarter preceding. Read the entire article here.

The quarterly drop was the largest in 50 years for the U.K. The year-over-year GDP decline was the largest in history. ("History" begins in 1948 when these records were first kept.)

Things may be improving for the U.K. in Q2. Michael Young (here and here) has pointed out that "NIESR estimates for U.K. GDP show positive data month-on-month for both April and May. Even the 'turkey' of the U.K. economy, property, has seen its trough, I believe."

The April projection from NIESR was reported by the BBC on June 11 here. Note that the Q1 GDP mentioned in the article is the 1.9% preliminary estimate, which has been replaced by the the 2.4% decline final value today.

If the April and May trend is followed through to June, the U.K. should post positive GDP change for the second quarter. This is something not considered likely for the U.S. So the outcome, at least in the near term, may be for the U.K. to have a deeper and shorter recession than the U.S. In the longer run (later 2009 and 2010) both economies' performance will be influenced by how the recession plays out in the rest of the world. If there is not the start of recovery from the worldwide collapse in manufacturing output and international trade, both the U.K. and the U.S. will be trying to swim against the tide.

In the U.S., the drag from the bottoming of the housing market and the continuing shakeout from unravelling the ongoing potential for mortgage defaults and foreclosures may be more of a burden than many are anticipating at present. If Michael Young is correct in his assessments, the U.K. may do better than the U.S. in late 2009 and 2010. The shape of the recovery (or failure of the recovery) may be quite different in the two countries.

Comments

[morph366:]

One of the main differences between the US and UK economies could actually be based in the election cycle. The US had its election last year and the political situation could be relatively calm for the next three plus years.
In the UK there has to be an election within less than a year and the current Brown government are doing a lot of window dressing in an attempt to hold on to power. A lot of painful fiscal measures will have to be addressed in the UK but for now Brown's government keep pushing them into the long grass beyond the next election.
This article, from the UK's Spectator magazine, is worth reading in this regard.

www.spectator.co.uk/co...

Jul 01 04:49 AM

[Steven Hansen:]

John, you are correct that no two countries will experience this recession in the same way even if they do similar things - as the forces within the economy are different.

i do agree that the housing / mortgage crisis may drag on the economy, but i suspect the employment / unemployment issues will be the ones we should be watching as there is a symbiotic relationship.

Jul 01 05:25 AM

[Dave Wrixon:]

Why does a collapse in International Trade affect the US?

Jul 01 07:23 AM

[Dave Wrixon:]

Actually it is all about the level of debt, Not Deficeit, DEBT.

The US position is much worse than UK, and this explains why China is finally decoupling. Not that China's surge is going to help the US much as most Americans had simply written them off to get their money back to safe haven dollars. How dumb they are all going to look when China emerges as the most dynamic economy in the World whilst the status of all US assets will shrink dramatically with a collapsing dollar. Unfortunately, this is the price to be paid for having your head up your arse.

The China situation should greatly benefit the Eurozone which is not only China biggest trading partner but also because the imbalance in trade is relatively small. Germany will benefit particularly as they help China tool up for further expansion.

Jul 01 07:28 AM

[John Lounsbury:]

Steve - - -

You wrote: "i do agree that the housing / mortgage crisis may drag on the economy, but i suspect the employment / unemployment issues will be the ones we should be watching as there is a symbiotic relationship."

I just wrote a long comment (at another article) about this very factor seekingalpha.com/autho...

Jul 01 11:56 AM

[John Lounsbury:]

Edward Harrison has an article today discussing the relative good health of the UK housing market: Prices up three of the last four months and down 9.2% year over year, half of the Case-Shiller numbers. seekingalpha.com/artic...

Jul 01 03:22 PM

[Gregman2:]

Is there such a thing as..."Trickle Up" Economics?;-)

Jul 01 07:18 PM