The 0.5% q/q fall in GDP in the third quarter has raised the possibility that the first recession, defined as two consecutive quarters of falling output, in 25 years has begun. But while the GDP data confirm that we have been right to be more concerned than most about the economy, there are four reasons why a recession remains unlikely. A lot of the fall was due a drop in public expenditure. The falls in government consumption (0.2% q/q) and public investment (10.4% q/q) meant that public demand fell by 2.4% q/q. That subtracted 0.6 percentage points from GDP growth. But since these falls are a reversal of the big rises in the second quarter, at the very least any further falls in the fourth quarter are unlikely to be as large.
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