In a previous blog post, I demonstrated that the UK’s current recovery from the 2008 crisis has taken longer to reach its pre-recession peak than any other recovery over the past 50-odd years. Moreover, things look even worse if figures are calculated on a GDP-per-capita basis than they do using simple GDP – GDP-per-capita remains below the pre-crisis peak despite GDP having surpassed it a couple of years ago.
Obviously there is plenty of debate as to why the UK’s recovery has been so protracted. Some, like Simon Wren-Lewis, think that the main (sole?) reason is due to the government’s implementation of fiscal austerity. Others point to the nature of the crisis having been a financial one as the main explanatory factor.
However, one thing that seems to have been neglected in terms of the UK’s recovery is the fact that the crisis was a global one and that the UK is more reliant on exports than some of the other countries that had quicker recoveries. In particular, according to the World Bank the UK’s exports of goods and services amount to about 30% of UK GDP, whereas for the US (commonly held up as the country that has recovered the best post-crisis) this figure is close to 14%. (And although Germany’s exports amount to about 45% of their GDP and Germany has also recovered more quickly than the UK, the fact that the German economy relies much more on manufacturing exports than the UK means that it is not a good comparator for the UK.)
Hence, it seems plausible (at least at first glance) that the global nature of the crisis coupled with the UK’s greater reliance on exports means that the path of exports can explain at least some of the difference between the current UK recovery and previous ones.
The graph below shows the path of the UK’s exports on a quarterly basis since the start of a recession for the past four recessions and recoveries.
It is interesting to note that the 1973-1976 recovery was associated with a rapid increase in exports during the recovery period, while exports during the the other three recoveries (1979-1983, 1990-1993, and 2008-2013) followed a more similar path until about three years into the recovery period. At that stage of the recovery, exports during both the 1979-1983 and 1990-1993 recoveries continued to increase at a relatively gradual but noticeable pace. However, exports during the 2008-2013 recovery stagnated and have not increased substantially at all over the past three-to-four years.
In other words, it seems that at least part of the reason the UK’s current recovery has been so slow recently is due to the lack of growth in exports over the past few years. It is important, therefore, that the “blame” for the prolonged nature of the UK’s current recovery is not entirely placed at the foot of fiscal austerity.