Lots of coverage regarding the forecasts that the UK's economy will shrink by around 2% in 2009 (the latest being CBI belatedly this morning with 1.7% - have they also been in denial?).
So what's so big about 2%?
Well the size of our economy measured by Gross Domestic Product is about £1,400 billion or 1.4 trillion. (Don't worry about the underlying math calculations). .
2% of this equals about £26 billion.
To give some comparison the size of the economy in 1990 was about £570 billion much less than now. Thus any percentage has a much bigger impact.
So how much is £26 billion and what does it look like?
Well, shrinkage of this sort would mean - as a an illustration - a quarter of hospitals disappearing in 12 months (and all the patients with it).
There are around 4.7 million small businesses in the UK and it would mean roughly 1 in 10 disappearing - some half a million or so.
That's how big 2% is and that's why everybody is worried. And that's just in 12 months.
Comparison with the 90s
Again to give comparison, there were 5 consecutive quarters of negative growth which defined the last recession in 1990 (3rd Qtr) through to 1991 (3rd Qtr). This was followed by three more quarters two very small growth (at 0.1%) before another negative 2nd qtr in 1992 which marked the end.
2008's 2nd qtr saw no growth and the 3rd qtr negative growth. 2009 is seen as wholly negative which would provide us with effectively seven consecutive negative growth quarters. That doesn't include 2010. That's worse than 1990-1992. So there you have it.
Just a word on training. Yes - the mantra is training at the moment- the only problem is what problem are we trying to solve?
We need the creation of new jobs that create the propensity for training/apprenticeships in terms of utilising human capital, otherwise it's rather fruitless (and frustrating for many).
That is why I urged in last week's blog that the UK needs an economic strategy. There was some very interesting but sad facts emanating from research this week on the post-Rover debacle. Only around a quarter of ex-staff had found jobs that had increased their earnings.
That's the price (very individually) you pay when you don't have a thought-through economic plan.
The only good thing about a recession is that it gets rid of all of the ephemeral non-jobs that appear in good times (though I still don't know why they appear in the first place?).
It also questions everybody's business model and blows away those that are inefficient or non-productive. In that way allocation of resources and human capital is redefined to become more efficient in a national sense. (However, it doesn't necessarily mean innovation gets a chance...)
We are going to find out just how sustainable the trendy social enterprises that have sprung up in the past decade are......
Make no mistake the way out of the recession is productivity and wealth creation. No amount of borrowing will assist unless it is precisely targeted and can be 'earned'. One-off tax cuts are decidedly dodgy and may at best prove to be only a temporary respite if at all.
What's discouraging is I heard a prominent Cabinet Minster on TV yesterday saying that he/they were not in the game of forecasting when it came to the next 12 months - a sure sign that lunatics have taken over the asylum. Well if you're not Mr Purnell I suggest that you resign right now and go and get a proper job (if you can find one) and do us all a favour!
