Growth is not a temperamental beast: it does not suddenly decide to bounce back from nowhere and act is if nothing has happened. Growth dynamics are incremental and take years if not decades to form.
Good growth depends on the balance between current and future production and consumption and the means used to fund it. Growth in the labour market, demographics, technology and processes, income and preferences, and confidence all impact growth and their impact likewise can take years.
I therefore find it strange how we can become so upbeat by short spikes in European growth following what has been a very long period of decline with still significant structural imbalances remaining. Factors that will negatively impact growth rates for some time to come remain in play.
Just looking through the Q2 UK GDP data:
Nominal GDP increased by 0.4% in the second quarter – it was a negative GDP deflator that pushed real growth to 0.7%.
Exports rose 3.6% in Q2, but had declined for two prior quarters. Exports have risen by 2.5% and imports have fallen by 0.5% since Q3 2012. Much of the improvement in exports has been due to aircraft and aircraft parts, which is in of itself a pretty cyclically volatile component of exports.
General government final consumption has been some 41% of GDP growth over the year (using quarter on quarter annual data).
Gross fixed capital investment grew by 1.7% in Q2 or some 32% of quarterly growth. Much of this has come from public sector investment and private sector residential investment. Business investment rose by 0.9%, but insufficient to recover any meaningful ground lost since early 2007 and a long period of fixed investment in this sector will be needed before we can assure ourselves that longer term dynamics are improving.
The one strong positive is the significant decline in inventories, although this may just have offset the inventory build up though the latter part of 2012.