Viewpoint: Why is GDP growth so weak?

Professor Costas Milas

Professor Costas Milas


By Professor Costas Milas, Professor of Finance, Management School, University of Liverpool

“According to the latest GDP estimate, the UK economy entered into the first leg of a “triple-dip” recession in the last quarter of 2012. This news will revive the debate on whether the implemented fiscal austerity is responsible for the economy’s shaky performance.

“Recent work, carried out by the University of Liverpool (`The Impact of Stock Market Illiquidity on Real UK GDP Growth”, by Chris Florackis, Gianluigi Giorgioni, Alexandros Kostakis and Costas Milas), identifies the drying up of liquidity (the availability of funds in the banking system and elsewhere) as the main reason for UK’s shaky economic performance.

“The drying up of liquidity in 2007, when the financial crisis hit, has been a key factor to blame, adding 2.3 percentage points to the severity of the recession. The economy has grown by roughly 0.5% a year since the coalition took office. In the absence of austerity, it would have grown only a little more strongly, perhaps 0.75%, our research suggests. The unemployment rate would have been a fractional 0.1 points lower annually.”

More information on the research can be found in this article inThe Sunday Times (27 January 2013). (subscription needed),

Leave a comment