Thursday, 13 August 2009

Break out the champagne and sauerkraut!

(By Anthony Miller – Thursday 13th August 2009 8:30am). The surprise news this morning that GDP growth in France and Germany returned to positive territory in Q2 – albeit only just – at 0.3% – came just a day after the Bank of England published its latest Inflation Report (see here) reiterating that the UK economy fell 0.8% in Q2. France’s GDP fell 1.1% in Q1 and Germany’s by 3.8%. UK Q1 GDP fell 2.4%, representing a 4.9% decline yoy.

Now, as they say in the classics, one swallow does not a summer make (or something like that), so whether this unexpected spurt will reverse this quarter is to be seen. Nonetheless, projections for UK GDP growth suggest we are near – perhaps reached – the trough, and that quarterly output will return to 2008 levels by the end of this year, though this still would leave GDP down on a 12 month basis. UK inflation (CPI) forecasts remain muted, with inflation expected to keep close to the government’s 2% target over much of the next 3 years.

We remain ‘cautious’ (undoubtedly the word of the year) on the prospects of a UK recovery; indeed we slightly lowered our UK SITS market forecasts just this week (see The UK SITS market - It’s worse than we thought (but not that much)!). Even if the apocryphal ‘green shoots of recovery’ are sighted (we don’t see them!), that would hardly be a signal for the padlocks on IT budgets to be unlocked. Any CFO worth his or her salt would surely want to see at least a couple of quarters of demand recovery before being prepared to restart new IT investment. And even then, they would hardly reinstate shelved or curtailed projects without yet another review of the business case to minimise upfront spend and accelerate ROI.

So let our European colleagues break out the champagne and sauerkraut for now. We Brits should settle for a nice cup of tea!

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