The economy performed more poorly than previously thought in the third quarter, with GDP contracting by 0.6% (0.65% to two decimal places) versus an earlier estimate of 0.5%. The slide in activity was, however, temporarily arrested in October: a monthly GDP estimate based on data on services and industrial output rose 0.2% from September, to a level equal to the third-quarter average – see first chart. Significant weakness is likely in November and December but forecasts that GDP will decline by 1% or more in the fourth quarter now look too pessimistic.
Other highlights of the GDP release include:
- Growth in late 2007 and early 2008 was faster than previously thought – GDP rose by 1.7% in the year to the second quarter versus an earlier estimate of 1.5%. Third-quarter annual growth is unchanged at 0.3%.
- GDP is still estimated to have been slightly higher in the second quarter than the first, implying the recession started in the third quarter. This will be confirmed by a decline in fourth-quarter GDP, released in late January. Monthly figures suggest the economy peaked in April 2008 – first chart.
- If the current recession were to follow a path based on an average of the last three, GDP would fall by a further 1.8% between the third quarter and the second quarter of 2009, move broadly sideways over the subsequent year and recover by 2.5% in the year from the second quarter of 2010 – second chart. This would result in an annual average decline of 1.7% in 2009 followed by growth of 0.4% in 2010. Such a profile appears plausible based on current information – future monetary trends will determine whether the economy undershoots or recovers relative to the average path.
- Net exports lifted GDP by just 0.2% in the year to the third quarter despite a large fall in the exchange rate. A significant improvement in visible trade contributed 0.8% but was offset by a deterioration in net exports of services.
