UK growth slowed in 2018, though not significantly out of line with the other major EU economies
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK data, comparing them with developments in the other major EU economies.
Concerning UK data:
- GDP growth slowed to 0.2% (QOQ) in 2018Q4, compared with 0.6% in 2018Q3. Growth was 1.4% for 2018, compared with 1.8% in 2017.
- Of the few activity indicators so far available for 2019Q1, retail sales recovered in January after the fall in December.
- The labour market remains robust, with strong employment growth and falling unemployment. The unemployment rate was 4.0% in 2018Q4, the lowest since the mid-1970s. Vacancies are at record levels.
- The tightening labour market is contributing to a pick-up in the annual growth of nominal earnings. This, combined with low prices inflation, is supporting real earnings growth.
- Public sector net borrowing (PSNB) showed a record surplus of £14.9bn in January 2019. The OBR’s October forecast for FY2018, which will probably be revised for the Spring Statement (13 March), was £25.5bn, which could be undershot.
- CPI annual inflation slipped to 1.8% in January, whilst producer prices inflation (both output and input) is relatively benign.
- The UK housing market remains subdued. Price rises were just 2.5% (YOY) in December.
Concerning the data for the Eurozone:
- Eurozone GDP rose just 0.2% (QOQ) in 2018Q4, within which German GDP was flat (QOQ) after a 0.2% fall in 2018Q3; French GDP was 0.3% higher; Italian GDP fell 0.2% after a 0.1% decline in 2018Q3; and Spanish GDP rose a buoyant 0.7%.
- The provisional growth rates for 2018 were 1.5% for Germany (2.2% in 2017), 1.5% also for France (2.2% also in 2017), 0.8% for Italy (1.6% in 2017), and 2.5% for Spain (3.0% in 2017).
- Industrial production is falling quite sharply in the Eurozone, and at a faster rate than in the UK. Moreover, declining production output has a greater impact on the German economy than, say, the UK economy as production accounts for 26% of Germany’s economy whereas production accounts for just 14% of the UK’s economy.
- Similarly weakening trade activity has a greater impact on the German economy than, say, the UK economy as the exports/GDP ratio is 47% in Germany whereas the exports/GDP ratio is 30% in the UK.
- The Commission revised GDP growth quite sharply lower for the EU19 for 2019. They projected 1.3% in their Winter (February) forecast, compared with 1.9% in their Autumn (November) forecast, reflecting across-the-board downgrades for the Eurozone’s “big four” countries, with significant downgrades for Germany and Italy.
Ruth Lea said, “There is no doubt the UK economy slowed in 2018, but the slowdown should be kept in perspective. The UK’s annual GDP growth, at 1.4%, was much in line with the 1.5% recorded in both Germany and France and considerably better than Italy’s 0.8%. Moreover, even though growth slowed in the UK towards the end of 2018, growth should continue into 2019, supported by rising real earnings. Meanwhile Italy entered recession in 2018Q4, whilst Germany, dragged down by a weaker trade performance, narrowly missed recession in the same quarter.”