Thread by @KellerZoe

Data show the UK did not suffer a bigger contraction than the €Z in 2020 (confusion due to different GDP measurement models: a like-for-like was -4,8% instead of -10%) and is better placed to bounce back to pre-pandemic GDP levels in 2021.
By AEP
telegraph.co.uk/business/2021/…

The UK economy did not suffer a bigger contraction than the eurozone last year. The narrative, believed by the London media,
never made sense. We now have the data, and we can see more clearly that it never happened. It was a story of apples and oranges.

Confusion over past data is due to measurement models. The ONS deducts a fall in visits to the doctor and reduced classes at school from accrued GDP. Most other countries do not. They calculate extra health spending as a boost to GDP. Hence a giant anomaly.

The like-for-like nominal GDP contraction was 10% in Spain, 6.2% in France, 4.8% in the UK, 3.8% in Germany, and 2.3% in the US. This alters the historical verdict on the Johnson government.

This is well-understood by the economics fraternity, but has been badly misunderstood by the lay commentariat. The illusory effect will reverse on the way up. The UK’s headline growth figures will be flattered – and look ridiculous – by mirror-image effect.

“The UK actually outperformed other countries in Europe slightly if you look at nominal GDP, and we’re expecting another outperformance this year,” says David Owen from the US bank Jefferies

The economy is poised to rebound strongly. “As its energies are released, the recovery should be one to remember after a year to forget,” says Andy Haldane, the Bank of England’s chief economist. A year from now annual growth could be in double-digits,” he says.

Households have amassed “accidental savings” of £125bn, and have paid down consumer debts by £20bn. Companies have a war chest of £100bn. Mr Haldane thinks a large chunk of this money is going to flood back into the real economy rapidly.

The UK vaccine roll-out pulls forward economic reopening by roughly 3 months relative to the €Z. New company have been surging: 201,820 business formations in Q4, sign UK’s flexible labour and product markets are adapting fast to the digital leap forward caused by the pandemic.

There is a risk that the recovery boomlet could fizzle out if Schumpeterians run amok or the Treasury reverts to austerity. But that same risk applies in spades to the €Z. The IMF warns that Germany, Spain, and the Netherlands all have contractionary fiscal settings this year.

Haldane may be over-optimistic but he’s certainly more plausible than the OECD’s dire forecast. It expects the UK GDP will be 6.4% below pre-pandemic levels at the end of 2021. I am willing to take the other of that trade with conviction, to use hedge fund parlance.

The OECD projection must be based on calamitous assumptions about Brexit. No such calamity is occurring, nor likely to occur under any analysis of the UK exports to the EU, as became clear in the faux media drama over JD Sports, a retailer having trouble shipping clothes from its

UK warehouse to shops in EU because the goods come from China and southeast Asia. It will have to ship directly from the Far East to its EU locations. That is of no macroeconomic relevance to the UK. The re-exports may show up in the UK trade balance but they add almost no value.

We had decibel levels of noise over trade disruption but little clarity on its economic scale. Shellfish have been rotting in wharves because the EU has imposed an unexpected ban on live exports but the total value of these exports is £15m.

It’s easy to redirect most of this fish for internal consumption: scallops, oysters, clams, and langoustines will be appearing on our shop shelves as market forces are allowed to operate. I am salivating at the thought of fresh spaghetti alle vongole from our own waters.

The big container ports tell me that goods are flowing as normal. More ships are going directly from northern Spain to Liverpool and other ports, or from Antwerp to the Humber, instead of going by road. This is better for CO2 emissions and more efficient.

There was a January scare over lorry loads through the Channel but it’s hard to separate from other effects: stock-building before the Brexit deadline; people holding back until teething pains are over. Already much-improved since mid-January, said the Road Haulage Association.

The Govt says lorry traffic is back to 98% of normal. Custom clearance into the EU is still needlessly complicated – arguably protectionist – but this is going to boomerang back against the EU when the UK ends its temporary waivers and starts to dish out the same treatment.

In the coming months EU exporters will lose UK market share to competitors from the US, Mexico, Japan, Korea, China, Latin America, or South Africa. Once lost, it probably goes forever. Brussels is going to face pressure from EU business to dial down its trade harassment regime.

Supply chains are in ferment. UK manufacturers have incentive to switch from EU suppliers to local production. This is hitting German companies very hard. The German Industry lobby (BDI), last week called for an immediate return to trade dialogue between the EU and the UK.

Nissan will produce more batteries for its electric vehicles in the UK as a direct consequence of the EU’s refusal to grant the UK ‘diagonal cumulation’ on Japanese parts under rule of origin thresholds. “Brexit has become an opportunity for Nissan,” said its chief officer.

There has been much focus on the immediate economic shocks of Brexit, but almost none on the silent offsetting effects. This year is going to turn that perception upside down. The spotlight will be back on Europe’s woes.