Osborne's unwise words

George Osborne says something odd here:

Today's figures show the private sector contributing all but 0.1% of the growth in the second quarter, and put beyond doubt that it was right to begin acting on the deficit now.

I fear this claim owes more to the confirmation bias than anything else. I fear it's unwise in three ways:
1. The government’s contribution to this growth was greater than 0.1 percentage points. Yes, "government and other services" contributed only 0.2 percentage points to growth. But the growth in other sectors was in part the result of increased public spending. For example, construction output rose 6.6%, adding 0.4 percentage points. But over 40% of construction output is public sector work (tables 3a and b of this pdf). And I suspect a chunk of the growth in manufacturing and other services was government-contracted work.
These figures don’t provide much evidence that the private sector is strong enough to take a fiscal tightening.
2. In neither his Budget nor his election campaign did Osborne argue that a fiscal tightening was justified because of the strength of the economy. To link the wisdom of such tightening now to the health of the economy is to create a hostage to fortune. If growth slows, Osborne’s opponents will say: “If it was right to cut the deficit when the economy was strong, it’s wrong to cut it now it’s weak.”
3. And this fortune could well turn. Pretty much all economists agree that growth will slow markedly from Q2’s 1.1%.
It’s quite common for GDP to rise strongly early in a recovery, only for growth to moderate later - partly because an ending of inventory cutbacks can give a one-off boost to growth. For example, in 1981Q3, GDP leapt by 1.4%. But GDP grew a mere 2% over the following four quarters, and unemployment continued to soar.
We shouldn’t, then, infer from these numbers alone that the government should cut spending now.

Comments

[rjw]

well, yes. It was a stupid comment from osborne. It's far too soon to read anything into the statistics. I'm not sure it's confirmation bias though. Just politicking. Osborne can't be stupid enough to beleive what he said (I hope).

[ortega]

I do not know if those figures are right, but I found that in Wales and NI public expending is about 70% of the GDP.
If that is true, have those kind of discussions any sense with an economy like that of Poland before 1989?