HomeUK GDP shows Economic Slowdown

UK GDP shows Economic Slowdown

13 May 2020 By Mircea Vasiu

The Q1 2020 UK GDP was released earlier today, and it revealed just how fragile one of the largest economies in Europe currently is. Moreover, as it reflects the first three months of the year, it does not show the bulk of the COVID-19 crisis effect.

When compared with the Financial Crisis of 2008, today’s release is scarier on a QoQ basis. It makes it unthinkable that the UK may experience V-shape recovery anytime soon, considering the challenges ahead.

The country entered 2020 in bad shape anyway. The long Brexit process, and especially the business exodus that followed, strongly affected the nation’s economic performance.

Two Worst is Yet to Come

As it happens with such data, one should be careful when interpreting it. Because the GDP is a lagging indicator, it shows the economic performance in the United Kingdom in the first three months of the year. At the same time, looking in retrospect, it shows how dependent the UK economy was on the global supply chain and trade.

The first signs of the pandemic crisis started to appear when the global supply chains were broken. The effects of the Chinese Government’s measures started to impact imports and exports as shipments were delayed. The economy, naturally, suffered.

Make no mistake, the data did beat expectations. It was expected that the GDP would print -2.6%, so a -2% contraction is viewed as a positive outlook. However, the fall is as big as experienced at the height of the financial crisis. And the second quarter is going to be much worse, for at least a couple of reasons.

First, for the month of April, and already May, the United Kingdom economy was/still is in lockdown mode. Businesses barely survive with money from the state, and the health system fights to control the spread of the virus.

Second, the traditional European partners were also in lockdown. No tourism, no business traveling, no exports or imports – a country standing still, blocked by the coronavirus health crisis.

One may argue that, in the end, these are just numbers created by an external, exogenous shock. Once the impact disappears, the economy will get back right where it was. This may be true, but the perceived economic damage at a time when the world does not know when the crisis ends will likely stay with us for longer than initially thought.

 

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