Itsallaguess wrote:Which was the point I was trying to make - the legacy COVID health-related 'activities' dropping out of the most recent GDP figures are clearly having a pronounced effect on the current 'recessionary' ONS figures, but there would be a valid view to be taken on that phenomenon that might suggest that if they *weren't* having such a pronounced effect, then that might show that we weren't spending enough on those COVID-related activities as we *should* have been doing...
There's a lot to be said for the 'we're in danger of talking ourselves into a recession' argument, and I think aspects such as this go some way to explain that, because we're currently in a comparative situation with regards to these types of GDP figures that are well outside what we might consider 'normal' in terms of injected influence* on previous comparative GDP figures...
The fall in GDP because of the big decline in COVID related expenditure is a great example of one of the many flaws in the method for calculating GDP. A big fall in COVID related spending is good for the economy because it reflects the vastly decreasing effect that COVID is having upon the economy. But that's not how the GDP statistics sees it.
All government expenditure counts towards GDP. So when it falls then GDP falls, whether or not that expenditure actually does something. So if state pays people to dig a series of holes and pays another group to follow behind them and fill in the holes as they are dug, then that increases GDP. It's even better for GDP if the government borrows a load of money because it can spend even more money employing hole diggers and hole fillers.
Lot of people are desperate for there to be a recession, so that they can use it to bash the government. I wouldn't be surprised if the recession is nothing like as bad as forecast, or even if there isn't one. A key factor is that there is a huge amount of pent up demand in the UK economy, thanks to the lockdowns, which is being released as the economy opens up. Lots of people (and businesses) have built up far more savings than they would have expected to have had because of the lockdown.
Also many people will cut their consumption of energy when they realise that they don't need to keep their central heating on in the entire house (or flat) for 24 hours a day at 25 centigrade. It might be a good idea to wear something thicker than a T-Shirt in the middle of winter.
Modern day economies are much more adaptable than they were in the 1970s, where a big rise in the oil price scuppered the western world. A key factor is that vastly less oil is required to produce a unit of output nowadays compared to the 1970s.
"The efficiency of oil use has improved, in other words oil intensity has declined, over the years and decades. In 1973, for example, when oil intensity was at its zenith, the world used a little less than one barrel of oil to produce $1,000 worth of GDP (2015 prices). By 2019 (the last data set before Covid) global oil intensity was 0.43 barrel per $1,000 of global GDP—a 56% decline. Oil has become a lot less important and humanity has become more efficient in making use of it."
https://www.energypolicy.columbia.edu/research/report/oil-intensity-curiously-steady-decline-oil-gdp
That said the doom and gloom that the media is pushing, combined with Keynes' "animal spirits" means that Britain could be talked into a recession because of a general lack of confidence. Then again, this has depressed the price, but not necessarily the value, of many potential investments