Wednesday, 28 January 2009  Comparative growth and shrinkage
The IMF thinks that the UK economy will shrink by 2.8% in 2009 -
the worst performance among "advanced nations". Quite an amusing
locution, that. But, bad as it sounds, what does this
performance actually mean?  We could look at it in one of two
ways:   • A reversal of most of 2007's growth. Real growth in
2007 was approximately 3%, so this contraction would cancel most
of it out. Not good, but if we had had just 0.1% growth for a
couple of years rather than +3 and -2.8, would we feel
differently about it?   • Cancelling out a quarter of the
'excess growth' of the last eight years. Long-run estimates of
UK productivity growth are around 2%. GDP growth has averaged
2.7% between 1992 and 2008. Thus, we have benefited from an
economy about 12% larger than it would have been under long-run
conditions. If the price of this is to lose a quarter of this
growth while the economy retrenches, then it was worth it.
Naturally there are plenty of variables. Is