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The UK economy is being hit hard by the ongoing credit crunch with its sizable financial sector under strain and the UK housing market finally showing signs of the long anticipated downturn after one of the biggest bull runs in history. These and much other bad news will undoubtedly hit the UK economy hard during 2008, and in advance of this the media has finally turned decidedly bearish with much speculation of a recession during 2008. In the Telegraph last week - David Owen, chief European economist at Dresdner Kleinwort Investment Bank, gave the odds of a recession in the UK during 2008 at 50%. In The Independent today, Stephen King, the managing director of economics at HSBC warns that the Chancellors luck has run out and of the risks of a bust in the UK during 2008. The opinion of my recent articles has been to expect growth of some 1.5% for the UK during 2008, therefore this technical analysis of GDP growth is to see if the economy is still on target for growth of 1.5% growth or if the increasingly bearish opinions of a recession are the more probable outcome. Analysis of UK GDP Growth for 2008
Key points which stand out from the GDP chart are : 1. That Britain has enjoyed a remarkably stable growth trend during the last 13 years, oscillating between +4% and +1.5% growth with-in a clearly defined channel and easily recognizable cycles. 2. That third quarter GDP failed to reach the upper boundary of the growth channel which implies weakness. 3. That the GDP growth cycle is clearly signaling a downtrend with previous downtrend cycles converging to a target low in the third or fourth quarter of 2008. 4. That the first half of the trend tends to be the severest, therefore expect a sharp drop in the GDP growth rate during 1st quarter of 2008 (4th quarter 2007 - Christmas boost), then subsequent quarters. 5. That GDP Trend is targeting a downtrend to between +1.3 and +1.6% The risks to the trend picture is that there will be a breakout to the downside, and therefore develop a new much weaker trend pattern than the chart suggests. This is possible given the UK housing bear market and the credit crisis. However whilst implying weaker growth, it does not mean that the UK will go into recession. Conclusion The forecast for UK GDP growth by the end of 2008 is for a an annualised growth rate of between 1% and 1.3%. This is marginally below the original expectation of growth of 1.5%. But does confirm that despite much bad news on the economic front, the UK looks set to not only avoid a recession during 2008, but seems likely to grow at a comfortable rate given the recession expectation circumstances. Also that the first half of the year will be much tougher in growth terms then the second half, which now allows me to complete the next analysis with more confidence on the prospects for the UK stock market.
Your analyst thinking about how rare and brief GDP contractions tend to be, compared to the amount of speculation in anticipation thereof.
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