By any measure, we are a decade into the recovery that followed the great financial crash. Every month there is a release of statistics pertaining to economic output, the labour market or exports. Every month we tend to look at these numbers over the last 10 years and ask ourselves the question - are we there yet?
In the second quarter of 2009, the UK economy finally began to grow again, following 6 quarters of negative growth. This is the point from which any recovery, such as it has been, began.
The recovery looked as though it might splutter out in 2012, but it was probably saved by the impact of the Olympic Games in London. However, it wasn’t until the second quarter of 2013, that UK GDP recovered to its pre-crisis output level. Even then, much of that growth was due to an increased population, and so GDP per capita became a more important measure of recovery. That didn’t find its pre-crisis level again until the second quarter of 2015, 6 years after the recovery began.
For Northern Ireland the story was even worse. There is no one definitive source on economic growth for Northern Ireland, but they all agree that the pace of recovery here, has been much slower. The best-case scenario is that we reached our pre-crisis output in 2015, but other estimates place it as late as the second quarter of 2016, a full three years after the UK as a whole. When we adjust for population growth, Northern Ireland only reached its pre-crisis peak last year.
In terms of the labour market, both Northern Ireland and the UK have added back the equivalent number of jobs lost during the crisis. At UK level, this was achieved in March 2012, three years after the hit. For Northern Ireland, it took 5 years, and was only achieved in 2015. Overall though, the rate of unemployment is now down below where it was even before the crisis hit.
So, are we there yet? Have we recovered? This question should prompt us to think about what we expected our ‘recovery’ to look like. If we are evaluating recovery on the basis of economic output and the number of jobs, well then yes, the economy has recovered. However, if we define recovery as the economy returning to what it was before the crash, then no, we have not.
This is one of the biggest problems with using a word such as recovery to describe the economy. Recovery implies getting back what you have lost and in economic terms some of what we lost is never coming back and that has profound consequences for what we can expect from our economy.
In Northern Ireland, during the financial crisis, we lost a huge portion of our output in construction, finance and other related industries. The level of output we previously enjoyed in these sectors was unsustainable and that is why we cannot have it back. We have made up ground in terms of output, but not in the same places. This has meant that the type of jobs that have been created over the recovery are not comparable to those that were lost.
Firstly, full-time employment, whilst still accounting for the majority of jobs has fallen from 77% of employment 10 years ago to 74%. Added to this there has been a substantial increase in the number of workers in temporary employment. In 2009, temporary employment accounted for 5.8% of employees, that has now increased to 7.3%. This has also impacted on earnings from work. The annual rate of growth in weekly pay averaged 0.2% in the 10 years since 2008 and as of 2018, wages are still 1.1% below where they were in 2009.
So, the number of jobs and the proportion of the population employed has recovered, yet we are not back to where we were. This has implications for our public finances. While the UK economy may have reached and exceeded its 2008 position, government spending is in a very different position.
In Northern Ireland, this means that in real terms, day to day public spending is lower now than it was in 2010. Even if the budgets to come in the next few years are more expansionary than what came before, it will take some time before we reach those levels of government spending again.
What all of this means is that an economic ‘recovery’ or whatever you wish to call it, is not an automatic rebound. The policy space in which a recovery occurs matters. The UK government adopted a strategy of fiscal consolidation over an investment led expansion. This determined the shape of recovery that we have made. We may feel the consequences of this for many years’ to come.