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55-handout - Where Will Growth Come From? 17/02/2011 Where...

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Where Will Growth Come From? 17/02/2011 www.tutor2u.net 1 Where will growth come from? Notes from lecture given by Prof John Van Reenen (LSE) 17 February 2011 A ‘V’ shaped recovery . .. For now Annual percentage change in GDP measured at constant prices The Cycle: Growth in UK National Output Source: UK Statistics Commission 90 92 94 96 98 00 02 04 06 08 10 12 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 Percent -6 -5 -4 -3 -2 -1 0 1 2 3 4 5
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Where Will Growth Come From? 17/02/2011 www.tutor2u.net 2 Recent growth experience A 6.5% decline in real GDP during the first 12 months of the recession – a decline of 1930s dimensions But the subsequent recovery (of sorts) puts the recent UK recession on a par with of that the early 1980s The coalition’s fiscal austerity program is the biggest budget cut since WWII Austerity plan is to reduce deficit by 7% of GDP by 2015-16 with much of the pain front-loaded to 2011-12 George Osborne believes we don’t need a plan B but Van Reenen argues that we need a Plan V if trend growth is to be sustained Damaging effects of recession Has there been a permanent fall in output? Lots of uncertainty about this and the size of the output gap Loss of output could be anywhere between 2-10% of GDP Trend growth rate will have diminished – 2% may be the new normal for the UK due to hysteresis effects: Scrapping of human capital / people leaving the labour force Long term unemployment now 1/3 rd of the total Scrapping of fixed capital / steep decline in capital spending Increased risk aversion of the financial system Micro policies of the Coalition may also be undermining trend growth e.g. Universities and immigration caps But recession and business shake-out may have lifted efficiency
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Where Will Growth Come From? 17/02/2011
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55-handout - Where Will Growth Come From? 17/02/2011 Where...

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