Economy in Brief

The U.K. GDP revision is said to confirm the signal of recession for the economy. I know that markets love to look at the 2 consecutive quarters of negative GDP as a rule that will define the onset of recession. However, I still prefer to view this as only ‘a rule of thumb’ and as an indicative signal not a definitive one. I have included the monthly GDP estimates for the U.K. as the accompanying chart for this discussion. What's clear from that presentation is that GDP growth has been asymptotically approaching zero; even broader charts of quarterly GDP growth show pretty much the same thing with GDP growth sliding down from strong post-COVID recovery growth rates to current growth rates that are closing in on zero. There is no doubt that the U.K. economy is in a period of weakness and under performance. And it may, in fact, be in recession or headed for one; however, at this point if it's a recession that's cropping up, it looks like a rather mild one. The two quarterly growth rates involved for Q3 and Q4 are -0.5% and -1.2% and these are at compounded annual rates. The year-over-year rate for the fourth quarter swing is from +0.2% in Q3 to -0.2% in Q4. That's not really a stark difference.

U.K. GDP revisions of quarterly rates of growth The GDP revision took Q4 GDP from a decline of 1.4% to a lesser decline of 1.2% in Q4. Private consumption switched from a decline of 0.6% to a decline of 0.2%. Public consumption rose from -1.2% to +0.3%. And there is a welter of other revelations that had impact as well, but one of the more interesting ones is that domestic demand when revised switched from +1.2% to -0.6% (Q/Q annual rate). That's when the shift begins to look a little bit more like a weaker economy of serious dimension. When domestic demand looking at annualized quarterly growth rates falls by 0.6% in Q4 after falling by 2.7% at an annual rate in Q3, that pair of negative growth rates is slightly more damaging than the pair we see for GDP.

Large trade growth rate revisions Among two of the larger quarterly revisions, exports shifted from a decline of 11% at an annual rate to a decline of 3.1% at an annual rate. Imports were shifted from a decline of 3.2% at an annual rate to a decline of 1.2% at an annual rate. Those are both relatively substantial changes in growth rates. By no stretch of the imagination is the U.K. doing well.

Some of the best news on the horizon is that the inflation picture has been getting better; it hasn't gotten better fast enough to get the Bank of England to start cutting rates yet.

In March, the overall EU Commission index of activity in the EMU rose to 96.3 from 95.5 in February, posting its strongest value since December. March saw gains (or no change) in all five major indexes, a change from February when three of the five sector indexes fell. Also in February, 11 member countries showed declines in sentiment month-to-month compared to only 5 member countries showing declines in their March indexes. The breadth of month-to-month performance improvement in March is more impressive than where the gains have taken the various country or sector indexes compared to historic values.

Around mid-2020, Italy emerged as having the strongest reading among the four largest economies in the monetary union. Conversely, Germany, beginning around mid-2023, began to lag and has consistently been the weakest economy among the major 4 since that time.