Revised forecast doesn’t mean there’s a recession

Jun 17 2008 by Sarah Green, The Journal

IT is true, CBI are predicting the lowest GDP growth since 1992 in our revised economic forecast. However, let’s be clear – this is not recession – our best bet is still that there will be a measure of economic growth in 2009.

The outlook has deteriorated in recent months, and considerable uncertainties remain. However, we currently forecast growth at 1.3% in 2009 and the forecast for growth in 2008 is essentially unchanged, at 1.7%, down only 0.1% on March’s forecast.

It is undoubtedly tough in consumer markets. The slowdown already under way in consumer spending is set to intensify, driving consumption growth down to only 0.7% in 2009 – the lowest since 1992 (0.5%).

At the same time as the economy slows, record high oil prices and steep increases in commodity costs are pushing inflation up. The CBI predicts that the CPI rate of inflation will exceed 3% for the remainder of 2008, peaking at 3.8% in the third quarter. The CBI expects it to remain above 3% until the end of the first quarter of 2009.

The high level of inflation in the short-term prevents the Bank from reducing rates for much of this year but, once the peak in inflation has passed and looking towards 2010, the CBI believes the Bank will have the flexibility to cut interest rates twice by the second quarter next year, to a level of 4.5%.

Export growth this year is expected to pick up in 2009, helped by the continued competitive value of the pound, while the weaker outlook for consumer demand and increased costs leads to comparatively subdued growth in imports.

We must remember, however, this is not a forecast for recession.

These days, firms are leaner and more efficient and our economy’s reach is far more global. We should avoid believing a recession is inevitable, or talk ourselves into unnecessary trouble.

Sarah Green is regional director of the CBI