Britain’s surprising growth and Spain’s relentless deterioration are again highlighting Europe’s north-south economic divide.
Fresh data released Thursday revealed that Britain narrowly avoided a triple-dip recession as its economy grew by 0.3 per cent in the first quarter, somewhat ahead of predictions. Spain, meanwhile, reported distressing new jobless figures, including a youth unemployment rate of 57 per cent, the highest in the Western world.
The British growth figure, while small, is a victory for George Osborne, chancellor of the exchequer, who would no doubt have come under enormous pressure to resign if the country had slipped back into a recession for the third time in five years.
“Today’s figures are an encouraging sign the economy is healing,” he said after the Office of National Statistics released its initial reading of gross domestic product.
“Despite a tough economic backdrop, we are making progress.”
Economists had predicted growth of 0.1 per cent in the first quarter over the final quarter of 2012. Despite the more robust growth figure, the British economy has been broadly flat over the last 18 months and GDP remains 2.6 per cent below its peak in early 2008, just before the start of the global financial crisis that triggered deep recessions in most European and North American economies.
The figures were preliminary and may be revised. Economists said a downward revision could reveal that Britain is in fact back in recession, typically defined as two quarters of contraction. Britain’s Spectator magazine reported last October that the ONS typically revises its figures; on average, the first estimates of quarterly growth have been changed up or down by an average of 0.8 percentage points since 1961.
Still, economists expressed optimism that any revised figures would conclude that the first quarter marked a return to growth after the 0.3-per-cent drop in the fourth quarter of 2012. They had expected a weaker first-quarter GDP figure because of frigid winter weather.
The growth figures came out as Spain produced more evidence that the euro zone crisis is far from over. The country’s jobless rate reached a record 27.2 per cent in the first quarter, with 6.2 million unemployed.
Spain’s economy shrank 1.9 per cent last year and contracted again in the first quarter, though the speed of decline seems to be slowing. Growth is not expected to make a comeback until late this year, at the earliest.
The Spanish unemployment figures reveal widespread family distress as the lack of jobs, relatively high inflation and the sinking economy destroy living standards. About 1.9 million families lack a parent with a job and three million Spaniards are living in extreme poverty, with income of less than €3,650 ($4,844) a year.
Britain’s better-than-expected growth figure will encourage the government to keep its austerity measures intact, economists said, even though they were criticized as harsh by the International Monetary Fund.
“This better U.K. data is ‘one in the eye’ for the IMF, which recently and publicly criticized the U.K. government’s deficit reduction approach, and is also a thumb to the nose for the ratings agencies, which have largely blamed the U.K.’s growth performance for recent downgrades,” said ING Financial Markets economist Rob Carnell.
Britain’s gross domestic product figure masked considerable weakness in some sectors. While the services sector was strong in the first quarter, manufacturing shrank by 0.3 per cent. Construction was also weak.
The stronger than expected GDP figure pushed up the pound by 1 per cent against the dollar, to $1.54 (U.S.). The FTSE index rose marginally.
Britain’s steadfast view on austerity looks increasingly isolated. Many European leaders, especially those in the south, think austerity has gone too far, pushing their economies deeper into recession, to the point of intolerable jobless levels.
Spain has been arguing for more budget deficit leeway as its jobless rate soars. Spain’s El Pais newspaper said Brussels is likely to allow Spain to run a 6-per-cent budget deficit this year against the 4.5-per-cent target.
In Italy, which is in deep recession, Prime Minister Enrico Letta used his maiden speech on Wednesday to denounce endless cutbacks.
“Europe’s policy of austerity is no longer sufficient,” he said in Rome.