Articles - A whimper, not a bang

 By Tom Elliott, global strategist at J.P. Morgan Asset Management

 "The 1% q/q 3rd quarter GDP growth number translates into an eye-watering 4% at an annualised rate. At first glance, the second recession since 2008 ended with a dramatic recovery in the late summer.

 "However, there are many qualifications that one must apply to the data. The combined effect of which suggests we ended the recession not with a bang but, if adjusted, with a whimper.

 "The qualifications include the flattering comparison against a second quarter that included the Queen's diamond jubilee holiday, which depressed spending during that period, and the inclusion in the third quarter numbers of large one-off contributions from TV Olympic broadcasting rights and Olympic ticket sales.

 "We expect growth to persist, after all we have seen improved industrial production numbers in recent months and drops in unemployment. But growth is likely to be at more modest levels (closer to 0.25% q/q) over the next four quarters).

 "The reasons are well known: government spending is due to be cut by around 5% of GDP over the next four years. Meanwhile rising negative equity in much of the UK housing market inhibits consumer spending growth.

 "True, the export sector may be able to drive output growth once emerging market demand growth recovers, but with unlimited quantitative easing promised by both the US Fed and the ECB (through its OMT scheme), sterling maybe stronger than economic fundamentals would suggest or exporters wish it to be."

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