One could be forgiven for not knowing whether to celebrate the banishing of the recession or worry about an unbalanced recovery
GDP is finally above pre-recession levels of activity with the economy now 0.2% higher than Q1 2008. And that is now six consecutive quarters of GDP growth which has not happened since 2006/7. Since 2010, the UK economy has been performing much better in an international context, especially over the last 18 months. At a headline level the UK economy is set to be the fastest growing developed economy this year according to the highly respected Ernst & Young Item Club and the IMF also increased its projection for economic growth in 2014 to 3.2%, up 0.4% from April. However, if you add context and compare the UK’s positioning since the start of the recession with the other G7 economies since Q1 2008, only Italy has lower growth levels.
Detailed figures show that it is also a service sector-led recovery with manufacturing and construction still below their pre-recession peaks.
At a headline level, construction output was flat quarter-on-quarter which, while not great news for the industry, was an upward revision from the initial estimates of a 0.5% decline. It shows that the industry is still 10.3% lower than at the start of 2008 but in the last year the industry has grown by 4.7% from the corresponding quarter last year.
So when commentators say construction is booming, it is actually the residential sector that is. Private residential new work increased by 17.1% between Q2 2014 and the same period in 2013. Over the same period commercial output growth was modest, growing by 0.5% and infrastructure declined by 8.2%. Given that these are three largest sectors in construction it is safe to assume growth is far from balanced. Looking back to pre-recession figures, output in the commercial sector was 38% below the level recorded before the recession, which is a clue to where the industry needs a growth boost.
Looking across other sectors in the industry, housing is expected to continue to drive the recovery in the medium-term. However while the long-term picture is still optimistic, increased private-sector investment is the key to getting the industry back to its pre-recession size sooner rather than later.
Michael Dall is an economist at Barbour ABI