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Instant View - Q4 GDP unexpectedly revised down
March 28, 2012 / 8:51 AM / 6 years ago

Instant View - Q4 GDP unexpectedly revised down

LONDON (Reuters) - The economy shrank more than initially thought in the last three months of 2011, official data showed on Wednesday, driven by weakness in the dominant services sector.



”The sharper than previously reported drop in GDP in the fourth quarter of 2011 is obviously disappointing but it does not fundamentally change the story of an economy that saw fitful and muted overall growth in 2011, with a relapse in activity at the end of the year.

”And attention is now firmly focused on whether the economy has returned to growth in the first quarter; and, if it has, can it build on this in still difficult conditions?

”One new piece of information was that real household disposable income fell by 0.2 percent quarter-on-quarter in the fourth quarter of 2011 and by 1.2 percent over the year as a whole, thereby highlighting the pressure that consumer are under. As a result, there was a dip in the households savings ratio to 7.7 percent in the fourth quarter of 2011 from 7.9 percent in the third.

“GDP contraction of 0.3 percent in the fourth quarter of 2011 was largely due to a worrying slump in business investment and substantially reduced stock building. Even so, there were some positive developments with consumer spending returning to growth and exports relatively robust despite the contraction in the euro zone.”


”Looking at the numbers there does appear to be slight marginal downward revisions to private consumption and government consumption, but the fixed investment figures weren’t as bad as we thought they were.

”What does it mean? Probably not a lot. But it kind of makes the starting point for 2012 that little bit more difficult. To some extent where you start determines your average outcome for the year, it just makes the hill a little bit steeper in order to reach the OBR’s 0.8 percent growth target.

“I don’t it materially changes the picture (on more QE). It’s going to be a close call as to whether the Bank of England does something. I think to some extent they’ll wait and see what the Fed does. If the Fed does way in with QE3 in the course of April the Bank of England might decide they can afford to pause for a while.”


”Weaker numbers for the full year but I don’t think it alters the basic story. The one bright spot in the numbers is the investment figures have been revised up and that was a particularly shocking weakness in the original estimates so I‘m pleased to see that.

”We have an estimate on gross disposal income, real income of households, has fallen by 1.2 percent for the full year which goes a long way to explaining the weakness of consumption.

”Given the big fall in inflation we expect this year even with oil prices ticking up again that should help to stabilise disposal income and consumption after a fall last year.

“The backward-looking story is a bit gloomier but the picture for this year really doesn’t change. The real point to emphasise is the volatility we’re going to see throughout the year which will make it rather difficult to discern the underlying pattern.”


”The slight downward revision to GDP in Q4 is disappointing, although of course this is fairly old news now and it looks as though the economy recovered somewhat in the first quarter.

”The 0.2 percent drop was revised to a 0.3 percent fall, with the downward revision to the services sector on the output side.

”On the spending side, the drop in investment is now estimated to have been much smaller than previously thought, but this was more than offset by a weaker contribution from net trade and smaller rises in consumer and government spending. At least there were some encouraging aspects to the detail.

”Although the household saving rate nudged down in Q4, the back-data have been revised up a fair bit. So it now looks like households’ finances are in a bit better condition than before.

”What’s more, the balance of payments figures show that the current account deficit fell sharply, reflecting both the drop in the trade deficit and a rise in the investment income surplus.

“Meanwhile, it looks as though the economy has managed to expand in Q1. Nonetheless, we still think that there are a number of reasons to doubt that the recovery can maintain the recent acceleration.”


”It’s a marginal disappointment that the figures have been revised down for Q4 very slightly, although to a certain extent that’s been balanced out by an upward revision to Q3 figures.

”Obviously what’s more important is what happens to GDP over the first three months of this year and it does look very much as if there’s been a bounce-back in output. We don’t think the headline GDP figures tell us very much about where we’re going.

“The case for or against more QE will hinge more on the outlook for growth over the next couple of years and of course the likely path of inflation. It’s unlikely Q4 figures on their own will have a big impact on the monetary policy debate.”



- Biggest fall in qq GDP since Q4 2010

- The ONS said the downward revision in quarterly GDP was driven by the transport and communications and business services and finances sectors

- Real household disposable income fell by 1.2 percent in 2011 as a whole, the biggest decline since 1977

- GDP in full year 2011 grew by 0.7 pct


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