To triple dip or not?

Posted on 13 Mar 2013

Senior economists give contrasting analyses of the “dire” stats in January, when manufacturing output fell by 1.5% month-on-month. Has industrial production (IP) shown that the triple dip is inevitable?

Reasons to be cheerful
Brian Sloan, Chief Economist at the Greater Manchester Chamber of Commerce

“The latest production output figures are certainly a disappointment. Talk of a triple dip recession

Some silver lining in the January IP figures
by the technical definition of a recession is damaging and misleading as the economy is flat and Q1 2012 has been revised up to -0.1% [from -0.2%].

“A further upward revision to Q1 2012 would mean we didn’t enter the double dip. While a technical triple dip is a risk, we are buoyed by signs of optimism in our own Quarterly Economic Survey for Q1 that confidence among manufacturers is holding and the survey indicates a pickup in manufacturing export orders for the coming months across the North West, so we are hopeful of avoiding a second consecutive quarter of negative growth.

The construction sector remains a concern despite an improvement in the North West order book over recent quarters; however there is evidence of work getting underway on the ground that should have spill over economic benefits.”

Rebound in IP, and service sector rally, needed to avoid a triple dip
Ross Walker, Senior Economist, Royal Bank of Scotland

Ross Walker, RBS
“UK manufacturing output slumped 1.5% m/m in January, the largest monthly decline since the Jubilee holiday-affected June 2012 outturn (-3.0% m/m) and, before that, January 2009 (-2.5% m/m). This was significantly worse than City expectations (consensus: 0.0%, RBS: -0.2%, range: -0.8% to +1.1%).

January’s fall fully reversed December’s rise but it would be a mistake to view this as a natural ‘level correction’ in output as December’s rise followed heavy declines in October (-1.2%) and November (-0.4%). The pace of contraction in manufacturing in the latest three months eased to -0.8% from -1.4%.

The wider industrial production measure fell 1.2% m/m in January, with a 1.2% m/m rise in utilities output more than offsetting a 4.3% slump in North Sea oil & gas extraction – so the collapse in IP in January cannot be attributed to the inherently volatile energy sector. In the latest three months, IP was down 0.9% vs a 2.1% q/q fall in Q4 (revised from -1.9% on the last set of GDP statistics – so not sufficient, arithmetically, to bring about a downward revision to Q4 GDP).

By sub-sector the declines in output were fairly broad-based, with a particularly heavy fall in investment goods (-3.2%).

“In terms of Q1 2013 GDP (preliminary estimate on 25 April), the January IP data have shunted the risks towards a decline and a technical ‘triple-dip’ recession. The January IP numbers could yet be revised and/or February and March could bring a rebound in output.

On balance, some improvement in the IP data is likely to materialise in subsequent months, but a fall in GDP in Q1 is very much in the balance – early construction data were also on the soft side.

Separately, the headline trade data showed a smaller-than-expected deficit in January: a total trade deficit of £2.4bn, down from a deficit of £2.8bn and versus consensus forecasts at -£3.2bn (RBS: -£3.0bn). The monthly data were flattered by a sharper reduction in the deficit in oil (oil exports jumped 10.2% in the month while imports fell a staggering 23.2%).

The underlying picture remains that there is an insufficient improvement in UK export performance to provide much of a boost to GDP.

Overall, a dire set of UK data. The slump in industrial production in January leaves a decline in Q1 GDP looking more likely than not. At any rate, some combination of upward revisions/rebounds in IP alongside a revival in services output growth will be required to avert a slide back into a technical ‘triple-dip recession’ in Q1.

Sustainable recovery and macroeconomic rebalancing feel as distant as ever. And it is far from clear that ever more doses of QE or currency depreciation will prove any more effective than in the past.”