25% Spending Cuts Will Reduce Gdp By What?

[interestrateripoff]

VMR Thread on job losses

VMR has posed the question about impact on jobs, but what happens to GDP with 25% cuts?

Denniger has been ranting for quite a while about US govt spending masking a real collapse in GDP. See attached.

Now if the govt follows through with a 25% cut how big a reduction will we see in the GDP figures?

Is a 25% cut in govt spending equal to a 5% cut in GDP?

If we do have a big cut in GDP then our debt to GDP ratio is going to increase.

Can anyone give a rough estimate of how much GDP will reduce if govt spending is cut in nearly all depts by 25%? Obviously there'll probably be some compound effect in the private economy as well.

[lie to bet]

Government spending is about 45% GDP

A cut of 20% government spendinig is 9% of GDP

OUCH

http://www.ukpublicspending.co.uk/uk_20th_century_chart.html

[The Knimbies who say No]

Government spending is about 45% GDP

A cut of 20% government spendinig is 9% of GDP

OUCH

http://www.ukpublicspending.co.uk/uk_20th_century_chart.html

erm, is that right?

Surely GDP is unaffected by Government spending?

[lie to bet]

erm, is that right?

Surely GDP is unaffected by Government spending?

http://en.wikipedia.org/wiki/Gross_domestic_product

GDP = private consumption + gross investment + government spending + (exports − imports),

[ralphmalph]

Do not forget that it is not 25% overnight it is 25% over 4 and a bit years. So about 5% per year with compounding.

Also NHS and Overseas aid is ring fenced and they are about 110bill combined. Govt spends 750 bill per year, less ringfenced items (750 - 110 = 640bill)

640 bill x 5% = 32bill per year.

UK GDP is about 1.35trill so 32bill per year is 2.37% of GDP.

[R K]

Yes. Obviously it was included in the growth numbers in the budget yesterday.

[interestrateripoff]

Yes. Obviously it was included in the growth numbers in the budget yesterday.

Don't forget they will have factored in the new none debt based consumer/company consumption that will make up for the lower govt consumption and the consumption not funded by debt.

[lie to bet]

http://news.bbc.co.uk/1/hi/politics/10374475.stm

The economy is predicted to grow by 1.2 % this year, 2.3% next year, 2.8% in 2012, 2.9% in 2013 and 2.7% in both 2014 and in 2015.

Over the 4 year period that spending will be cut by about 20% (I think it is slightly less) the treasury predicts successive years of GDP growth.

Wow!! There are bonanza years ahead for the Private sector to bring about thes increases in GDP.

Just can't wait, I think I will go and max out the credit cards now. I will be able to pay it back easily with the pay rise I'm bound to get.

[VeryMeanReversion]

http://news.bbc.co.uk/1/hi/politics/10374475.stm

The economy is predicted to grow by 1.2 % this year, 2.3% next year, 2.8% in 2012, 2.9% in 2013 and 2.7% in both 2014 and in 2015.

Over the 4 year period that spending will be cut by about 20% (I think it is slightly less) the treasury predicts successive years of GDP growth.

My understanding is that those predictions were pre-budget.

VMR.

[lie to bet]

My understanding is that those predictions were pre-budget.

VMR.

I did wonder about that but they are given onthe BBC site as Key points delivered in 2010 budget.

[R K]

Don't forget they will have factored in the new none debt based consumer/company consumption that will make up for the lower govt consumption and the consumption not funded by debt.

It's a balancing figure. You're fixated with it.

For every yin there's a yang remember.

[interestrateripoff]

My understanding is that those predictions were pre-budget.

VMR.

Tell me this isn't some sort of surreal joke...

So the independent commission set up with creating these stats based them nothing rather than reality.

You just couldn't make this up.

[lets get it right]

What does GDP include? (Gross Domestic Product sounds like it ought to be sum of everything we make).

Say a country has a population of 10 people. They are all farmers and their gross domestic product is enough food to feed them all.

They each grow different food and have devised a system of currency to exchange their food between them. Using their currency (as a measure) they each produce £100 worth of food each.

Total GDP is £1000

They decide they need someone to do general jobs like tidying up and looking after any of them that fall ill etc - so they agree that 9 of them will chip in 11% of their earnings and pay the 10th one £99 a year as a public servant.

What has happened to GDP? Looks to me like it just went down by 10%.

[lets get it right]

Do not forget that it is not 25% overnight it is 25% over 4 and a bit years. So about 5% per year with compounding.

Also NHS and Overseas aid is ring fenced and they are about 110bill combined. Govt spends 750 bill per year, less ringfenced items (750 - 110 = 640bill)

640 bill x 5% = 32bill per year.

UK GDP is about 1.35trill so 32bill per year is 2.37% of GDP.

I've been labouring under the illusion that our GDP was about 2.65 billion. Wonder where I got that figure from?

[interestrateripoff]

I've been labouring under the illusion that our GDP was about 2.65 billion. Wonder where I got that figure from?

Gordon Brown?

[Snugglybear]

My understanding is that those predictions were pre-budget.

VMR.

The OBR's figures for 'Trend Growth' in the Pre-Budget Forecast compared to the figures in the March Budget. http://budgetresponsibility.independent.gov.uk/d/pre_budget_forecast_140610.pdf

2010 Q3 to 2013 Q4 March Budget (economy) 2¾ March Budget (public finances) 2½ OBR 2.35

2014 Q1 to 2015 Q1 March Budget (economy) 2¾ March Budget (public finances) 2½ OBR 2.10

[VeryMeanReversion]

Tell me this isn't some sort of surreal joke...

So the independent commission set up with creating these stats based them nothing rather than reality.

You just couldn't make this up.

The OBR predictions didn't even account for the initial £6bn cut announced. They also assumed:

- The economy rebalances away from excessive reliance on consumer spending and government and towards exports and investment

- Employment grows

- Unemployment peaks soon at just over 8%, then falls back

- House prices grow modestly

Either I'm nuts or they are. I'll let you be the judge of that.

VMR.

http://www.economicsuk.com/blog/001177.html

[interestrateripoff]

The OBR predictions didn't even account for the initial £6bn cut announced. They also assumed:

- The economy rebalances away from excessive reliance on consumer spending and government and towards exports and investment

- Employment grows

- Unemployment peaks soon at just over 8%, then falls back

- House prices grow modestly

Either I'm nuts or they are. I'll let you be the judge of that.

VMR.

http://www.economicsuk.com/blog/001177.html

Whatever the OBR are on can I have some, clearly it's grade A sh1t and they should share it with the nation.

[jareth]

I've been labouring under the illusion that our GDP was about 2.65 billion. Wonder where I got that figure from?

Sounds like you are thinking in dollars not pounds.

[yellerkat]

Then there's this little chart: (Posted last night; apologies to OP [whoever s/he was] for nicking without acknowledgement).

We're not in a good place.

[lie to bet]

The OBR predictions didn't even account for the initial £6bn cut announced. They also assumed:

- The economy rebalances away from excessive reliance on consumer spending and government and towards exports and investment

- Employment grows

- Unemployment peaks soon at just over 8%, then falls back

- House prices grow modestly

Either I'm nuts or they are. I'll let you be the judge of that.

VMR.

http://www.economicsuk.com/blog/001177.html

It is interseting that we all seem to be unclear on what the predicted GDP figures are.

It is the day after the budget and we should know.

Are the figures issuued by the newly formed OBR still being used and if so did these take into account the changes made in the budget.

How is it that politicians are so good at confusing every issue they touch.