From Capital Economics:
After yesterday’s news that GDP fell in the third quarter, this means the chances of a recession — two consecutive quarters of falling GDP — have just increased.
The problem isn’t the nominal deficit, which should narrow sharply as the rise in iron ore and coal prices boost the value of exports as higher commodity prices could boost export values by 6 per cent in the fourth quarter.The issue is that most of that rise will probably be due to price effects. Real exports may have fallen, perhaps by 3 per cent Q/Q, and the monthly non-seasonally adjusted figures suggest that the volume of coking coal and thermal coal fell by 12 per cent m/m and 16 per cent m/m respectively in October … it’s the volume of trade that matters when it comes to real GDP growth.
Deals says while it’s too early to make a firm call, net exports could subtract around 1.0 percentage point from real GDP growth in the fourth quarter, after taking off 0.2 percentage points in the third.
“That would mean you need other parts of the economy to be much stronger to prevent another fall in GDP. That’s perfectly possible, and probable too, but we are now more worried.”
Let’s hope so. Putting this ridiculous ‘no recession’ mantra behind us as living standards fall would be a good reboot for the debate.
