Don't be too scared by recession. The economy is improving, but we're in for a long haul.
The trouble with the daily run of big, scary data on the economy is that, while it tells us what happened in the past, it says nothing about the important bit: what happens next.
Today’s news that the economy contracted 20% in April to June is interesting. Shocking, even.
But as we sit here on August 12th, it’s really not much use.
What we actually need to know is whether the recessionary doldrums are likely to continue, for how long and how badly. Critically, how much damage has the downturn had on the economy’s ability to recover?
On all those scores, today’s data are particularly useless because the conditions in which they were recorded - total or partial lockdowns of the economy – were so unlike what we have now. The UK is far from being back to normal, sure, but it’s another country compared to dystopian April, when even our Prime Minister seemed at death’s door.
Of a little more use than the quarterly headline grabber was the trend showing up in June, which suggested a decent bounceback got underway. That direction of travel should carry through into a strong third quarter recovery.
There’s a good chance that might turn out to be better than economists expect. Signs suggests countries like the UK which bungled the Covid response and ended up locking down for longer will see their industrial production recover faster than those that didn’t.
UBS today even says UK assets look cheap relative to most Eurozone peers.
To me, that looks a gutsy call at a time when unemployment has not yet been unleashed fully due to the furlough scheme protecting jobs.
Not to mention our, ahem, distinctive situation with the Brexit negotiations.
My bet is that the third quarter strength rapidly fizzles out, to be replaced by a long, wheezy uphill climb to get Britain back to anything like pre-Covid levels.
But forecasting has never been harder. And it’s not helped much by poring over ancient data.
