Buttonwood,

Do you have a link to the data by category?
C, I, X, G

One would think that Consumption would have gone up as the
VAT was to rise in 2011.

One would think Investment would drop as companies cut back
for the increase in the VAT and the decrease in Government
for 2011.

Regards

"Often, the most startling numbers are revised on second estimaes - but it is hard to see how that can be turned into the expected 0.5% increase."

As has happened a few times in the UK since the US led the world into recession you mean?

This is hardly that unexpected, as there was plenty of talk that the disruption caused by the snow was going have a knock on effect.

http://www.statistics.gov.uk/cci/nugget.asp?id=192

And if we go look at what the ONS has to say (This will be of interest to you Mr Hedgefundguy) it looks more like weather + seasonal business slow down, "The decline in the fourth quarter is due to decreases in two of the component aggregate series, namely services and construction.(source: ONS)" neither of which tend to do much business over the Xmas period as a rule.

or magical option number 3 practiced by several French governments in the 1920s and then again in the 1980s. Let loose the printers of war, and let the next sucker deal with the repercussions!

A third option for the United States would be a couple of years of sustained stimulus aimed at improving our decaying infrastructure backed up simultaneously with comprehensive budgeting and tax reform that cut spending, increased tax revenue over the medium to long term, simplified tax compliance, encouraged energy conservation and domestic energy production, especially renewables and nuclear.

Well, I can dream, can't I?

Adjust your focus people. See the bigger picture, it's not a PIGS only problem, Britain is in trouble as well. They will not grow consistently anytime soon. How will they do that? Export with they useless GBP at current rate? Invent the new kind of energy source? Kill every people being supported by state funds?

Jose Carlos Costa wrote:"Kill every people being supported by state funds?"

This would solve a number of problems, one being economic, the others being social as the UK is horribly over populated and european citizens both in the UK and on the continent, a number eurocrats and all politicians and of course possibly the Royal family. I the ensuing panic, no doubt a lot of rich people would become a lot poorer or dead, and the country would enter a brief stage of Anarchy, which tends to swiftly move on to a kind of Despotism and Feudalism. Over time, some may call it a "restarting" of Britain and of the economy.

I am sure such measures may have been considered if Labour was still in power, the last intervention of the "Nanny State".

1 - the phrase 'double dip recession' is becoming almost as irritating as 'postcode lottery'! Both seem symptoms primarily of lazy journalism.

2 - Since the 'shocks' themselves seem damaging could one contrive some way to publish these figures gradually? As I understand it each estimate is a combination of many figures reported at different times. Why not publish the components as they become available so that we have a continuously evolving estimate instead of a quarterly shock?

Businesses respond to anticipation of changing market conditions, so if they were expecting weakening demand the might preemptively slow down hiring and investing. It's not hard to imagine how planned austerity can lead to a slowdown before its enacted as businesses wait and see what will happen in a few months.

Germany was the first country to start talking of cuts rather than more spending, like we saw in the US with QE 2, and they are not revising down their GDP by such a intimidating looking percent. In fact, Germany has had it's highest growth since unification. With Germany's success, the Keynesians cannot possibly cite this as "proof" for more deficit spending.

"As the US current account deficit shrinks, in the face of austerity, that will be bad news for the export-led models of China, Germany and Japan."

Only bad news if the US was their only trading partner? Which it is obviously not. Man, the economist LOVES to take shots at the export-lead economic models.

@ Jose Calos Costa - dear chap I must say that it would appear one has a massive chip upon one's shoulder. I have found GBP to be perfectly useful legal tender and its rapid depreciation has helped the UK manufacturing sector - which did grow despite the overall fall in GDP.

An injection of a little humour into your worldview would probably make life a lot more fun. Tally - ho!

There is no postponing the inevitable collapse of the global economy unless all countries exercise their own fiscal responsibilities by stop printing free money, balance out their trade deficits, reducing meaningless military expenditures, squeezing the inflation bubbles by increasing rates and finally, increasing tax the Riichis and Bankster bonuses to pay for all the social programs.

The US had far more snow than the UK and they seem to be doing alright according to this article - The IMF has raised its estimates for 2011 global growth on the back of stronger output from the US. It says President Obama's extension of the Bush era tax cuts, plus the renewal of emergency jobless benefits will push the US to GDP growth of 3% in 2011, the fastest of the Group of Seven economies.
http://www.mindfulmoney.co.uk/3008/economic-impact/us-economy-strong-gdp...
Why is the UK blaming the snow for all economic woes at the moment?

Can somebody please explain to me how quantitative easing bought the world economy ANY time, much less a year, as the correspondant reports? From what I could tell at the time, quantitative easing (read: printing new money and handing it to U.S. banks for some reason) was intended to lower interest rates on loans, and has instead had the exact opposite effect. This has driven up home loan prices and mired the U.S. housing market in an even longer slump. So how exactly did this help again? (Besides letting the banks have plenty of money for bonuses, which in some circles of economic theory could possibly dribble down to the gardener/maid).

Devaluation of the POUND has failed to have the desired effect as most things are imported. Holders of savings are not spending...thats a depressing effect on the economy as people are living on their capital or private pension. SOURCES OF GROWTH? Not from consumer with VAT now at 20 percent. Exports...British exports to CHINA less than ITALY. UK property prices declining outside London so not much upward movement there with banks not lending; even to business. So many major companies sold like CADBURYS/KRAFT Thames Water BOOTS/KKR ICI MINI/BMW Land-Rover/Jaguar...so profits repatriated abroad. HMG needs to re-finance a massive deficit....we need higher interest rates. Our banks are now dead-weight dragging us all down...you can hear the noise from here. CRUNCH!

Ditto! The article has concluded accurately about the slow growth that is taking place in places like GB at .5% a quarter or anuualized growth at 2%. With that type of growth, cutting spending or making austeriety will not be good to come out of this type of recession that we have been experiencing. It is however prudent to stimulate the economy by investing in the infrastructure where it is vital to employment. Once the economy comes out of the recessionery mode as we are experiencing in the US, we can think about spending issues or the deficit problem in the long run. By going into short term fix such as austeriety measure will not bode well to come out of the jolt of economic recovery. The US has done a good job on that front and due to the implementationof recovery act, it has staved of the economic movement in a positive direction. We hope this continues at least for a short while. But the political wrangling will prevent that kind of stimulas in the coming days.

nschomer...US Schiller-Case res.house price index released today...national house prices in decline in all metroploitan areas EXCEPT Washington DC up 3 percent last quarter. CDO subprime mortgage derivatives market (500 trillion dollars)...further losses to be expected by this continuing decline. Toxic madness?

CHINA now net seller of US Treasuries from last October. The day of the dollar has past says CHINA. Printing dollars not acceptable to China. US dollar down 35 percent against Japanese YEN since mid-2006. Japans main trading partner now China. Sea-change? The answer my friend is blowing in the wind.....you dont need a weather man.

The good news is manufacturing.

The issue of austerity need not be phrased as Keynesian temporary deficits but in exchange rates. The pound is actually higher now versus the Euro of a year or two back but it's substantially below the exchange rate before the big smash up. One could imagine more exports and thus more from the manufacturing sector if the pound got cheaper, though of course Britain also has more inflation to consider than other countries. But the manufacturing sector is doing what it is I would think because of the effects of the relative fall in value.

I thought one point behind austerity in Britain was that the separate currency allowed a balancing of the books behind greater exports: the weaker pound, something the Tories knew had happened, was an important base for their policy. Things need to improve quite a bit for that to be true.

So to repeat, it isn't deficit Keynesian but exchange rate Keynesian at issue.

Dear Buttonwood,

Your argument that
"In a sense, developed world governments have a stark choice. They can prop up their economies in the short-term at the risk of making the long-term debt and trade problems worse; or they can try to be prudent, at the risk of damaging growth in the short-term and incurring electoral unpopularity."
is a straw man.

Governemnts CAN both stimulate the economy while reducing deficit (look at Germany, where it is not working perfectly, but at least to some extent). That is not to say that doing it is easy.
What you need is a reasonable mix of taxation and incentives and a lot of godwill in society. You can start by taxing the extremely rich - who use their money for speculation and currently hoard it underminging the economy - and give to the "poor" who have to spend (and therefore cannot just hoard cash and wait)- on very reasonable things like food and housing. You can support job creation in reasonable areas, such as green energy and remove excess cash from where it caused trouble (real-state speculation, banking, etc.) by sensitive changes in the legislation (Tobin tax, banning naked shorts, etc., etc.).
And above all - you cannot rush change. It is like treating a serious drug addict. You have to reduce the amount of adminstered drug step by step to prevent a turkey, which can result in very dangerous behaviour.

Tim Hart,

the funny thing about German success (it remains to be seen how long it will last) is that appart from cuts, which get a lot of publicity, there have also been substantial governement stimuli, which do not get that much publicity. And the Germans do not rush.

UK is still growing faster, by 0.5%, than EZ area. Given that UK businesses are having to look for other business since the Labour instigated 60% trade with EU is causing problems, growth is going to remain slow.

This is another diver for the UK to renegotiate its place within the EU, and to sign up to the 2007 DOHA agreement put forward by other Commonwealth nations for the group to become a free trade area.