The UK is officially back in recession. Is the coalition's economic strategy to blame, or the eurozone crisis? Polly Curtis, with your help, finds out. Get in touch below the line, tweet @pollycurtis or email polly.curtis@guardian.co.uk.
The Office for National Statistics published GDP figures today showing that the UK is officially back in recession with negative growth of 0.2%. These are their toplines:
• GDP decreased by 0.2% in Q1 2012
• Output of the production industries decreased by 0.4% in Q1 2012, following a decrease of 1.3% in the previous quarter
• Construction sector output decreased by 3% in Q1 2012, following a decrease of 0.2% in the previous quarter
• Output of the service industries increased by 0.1% in Q1 2012, following a decrease of 0.1% in the previous quarter
• GDP in volume terms is flat in Q1 2012, when compared with Q1 2011
The Treasury is already briefing that this is an inevitable result of the euro crisis dampening economies across the continent. Labour blames the government's economic policies, saying they are cutting "too far and too fast" and that they still lack a growth strategy.
I'm going to speak with the economists and analysts to try and get the facts on this.
What does the pattern of negative growth – fuelled by the falling construction rate that was so dramatic the statisticians went back repeatedly to check them – mean?
Is the eurozone crisis really to blame?
Analysis
I've been speaking to Tim Leunig, chief economist at the liberal thinktank Centre Forum. He told me it's very difficult to tell the causes of the double dip from these figures. He said:
There's very little you can say about that either way unless the ONS says that exports have collapsed. The construction industry is not a eurozone issue. If the eurozone had done better other sectors might have grown. If it's construction it's not really the austerity measures either – it's not teachers losing jobs.
But it could be either indirectly – people not building extensions because they are suffering from their own exports to the eurozone falling, or because they lost their public sector job. But you can't immediately point a finger either way and say it's that.
It's important to remember that the initial British GDP quarterly figures are hopelessly unreliable, they are quick, they involve guesswork. The Bank of England is very sceptical. Whether it's plus 0.1 or minus 0.1 the economy is in the doldrums. Since the start of the recession Canada has got back to its previous peak, so has Germany and the US. They are all richer than they were. France is back to where it was. Japan's is closer. Only Italy is worse. Within the G7 only Italy is doing worse than us. I mean heck. It's not where you want to be.
The causes are a known unknown. What's interesting is how we can get out of the problem. If you see the doctor and ask why you got cancer it's not really relevant. We just want a cure. It's the same with this. What we care about now is prognosis what can we do to get out of this. This isn't a case of Ed Balls or George Osborne, plan A or plan B. There are lots of different historical precedences we can look at to get out of this. But it needs a change in course. You can say it's the lack of a growth strategy that's working. The government has a growth strategy. It isn't working. The government believed austerity would reassure the economy. That's not the reality.
Do get in touch with any suggestions of people with interesting views on this, evidence to support it and I'm about to look for export figures in the ONS stats - let me know if you've got there first.
Tony Dolphin, chief economist at the left of centre thinktank the Institute of Public Policy Research (IPPR) has emailed in these stats from the release:
Look at table B1 (available here) and compare 2012 Q1 with 2011 Q3
GDP down 0.5%
Manufacturing down 0.8% - so a bit worse than the aggregate and export data do suggest some hit form the eurozone crisis
Construction down 3.2% - that's all domestic and due to inadequate housing and cuts in government capital spending
Services up 0.1% BUT
Government services up 0.6%
Distribution etc down 0.4%
Transport etc down 0.1%
Business etc down 0.1%So private sector services down – harder to blame that on the eurozone
He says:
The composition of growth is also a blow for the chancellor who called for the economic recovery to be led by a 'march of the makers'. The recession is the result of large drops in manufacturing and construction output. While - as the chancellor has said - the crisis in the euro zone explains some of the weakness in manufacturing, the fall in construction is wholly a domestic problem, reflecting inadequate investment in housing and deep cuts in government capital spending.
The most obvious way to identify the impact of the eurozone crisis would be in export figures, which aren't identified in the GDP data. They would make-up part of the manufacturing, production and, to a certain extent, services figures.
I asked Tony Dolphin where these figures are and he sent over the following:
Latest three months (to February) compared to the previous three months for volume of exports of goods:
• To the rest of the EU was down 1.2%
• To the rest of the world exc EU was up 2.4%
Latest three months (to February) compared to the same three months a year earlier for volume of exports of goods:
To the rest of the EU was down 3.3%
To the rest of the world exc EU was up 1.7%
Source: http://www.ons.gov.uk/ons/dcp171778_262612.pdf (Table 5)
So clearly there is a reduction in exports to the EU compared with the rest of the world which presumably is because of the euro crisis. But we don't know whether it's big enough to make a serious impact on the overall GDP figures. Significantly, the major decrease in the GDP figures today is with construction, which the two economists I've spoken to agree can't be directly the result of the euro crisis. There could be an indirect effect but it would be limited and couldn't explain the overall decrease in GDP.
George Osborne's reaction, as reported by my colleague Andrew Sparrow on his liveblog:
It's a very tough economic situation. It's taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime – even after the recent fall in unemployment. But over many years this country built up massive debts, which we are having to pay off. It's made much harder when so much of the rest of Europe is in recession or heading into it. The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.
It's interesting that he isn't now stating the eurozone crisis as the pre-eminent reason for the struggling economy. Clearly from what the economists are telling us the figures wouldn't stand that up.
On Twitter @ChrisGiles_, the FT's economics editor (trusted on these things), says that the entire fall in GDP is accounted for by the drop in construction.
UK recession - entirely due to 3% fall in construction output in Q1. North Sea oil decline also hurts.
In light of this and the chancellor's statement I'm going to change tack slightly.
It's clear that the overall drop is nearly entirely down to the fall in construction industry and that this has taken the government by surprise because it can't be explicitly linked to the eurozone.
But the complaint about this is that the construction figures are the least reliable in the notoriously changeable GDP stats. No one is saying that the economy isn't bad; it's clearly flatlined. Larry Elliot, our economics editor, writes:
The dip in activity is small but massively significant. With the government up to its eyeballs in the phone-hacking scandal and with local elections looming, the timing could hardly have been worse for David Cameron and George Osborne...
City analysts, once again caught on the hop by the dismal growth figures, will no doubt make the point that the main reason behind the 0.2% contraction in the first quarter was the performance of the construction sector, where the figures are notoriously prone to revision.
Are the construction figures reliable? What is going on in the construction industry? As usual, any thoughts let me know.
I've just spoken with Jonathan Portes, head of the National Institute of Economic and Social Research, who says the problems in the construction industry are almost entirely due to to the reduction in public sector investment. Figures released yesterday showed a 25% fall in the past year in public investment as a result of the government's austerity programme. He said:
Public sector net investment [published yesterday available on page four of this pdf] was cut by 25% last year. A lot of that is construction. All of the reduction in deficit last year came from cutting public investment – houses, schools, hospitals, roads. What do you expect? Of course construction spending fell.
I think there is a direct connection between what you see in the public sector net investment figures and today's construction figures. In the broader sense there are two points: First, the difference between minus 0.2 and plus 0.2 doesn't mean anything. The economy has not recovered. We need strong growth. That's the fundamental issue. Secondly, and obviously the international environment makes things more difficult, but domestic policy mistakes have contributed too.
This is the table that shows the drop in public sector investment.
Summary
Today's poor GDP figures showing that the UK is technically back in a recession cannot be blamed on the eurozone crisis. The fall in GDP is fuelled almost entirely by a dramatic 3% fall in construction output, a domestic issue. It could be that people and companies who are themselves affected by the eurozone's problems are spending less on construction but this would have a marginal effect.
Separate export figures show exports to the eurozone is slowing compared with the rest of the world amid the euro crisis but that is not why we are today back in recession. Indeed, the government was not citing the eurozone as the principle problem today but as a compounding factor.
The construction figures took the government by surprise but they probably shouldn't have. Jonathan Portes pointed out to us that figures yesterday showed a 25% decrease in public sector net investment last year – a lot of that would have been in building new schools and hospitals. It reflects the slowing down of public sector investment, for example after the scrapping of Labour school building programme.