Last week, the Office for National Statistics (ONS) released its estimate for Gross Domestic Product (GDP) for the second quarter of the year. That’s significant because GDP is the main indicator of a country’s economic performance.
As expected, the figure is dire. The ONS reckons GDP plunged by just over 20% in Q2 from April to June. Before that, in Q1, we saw a drop of a little over 2%. And the official definition of a recession is two consecutive quarterly declines in GDP.
The recession is probably already over
You’ll see the headlines about the UK’s recession all over the place, such as on the BBC and in newspapers. But the real story is that the UK is probably already out of recession. Indeed, lockdowns have lifted and economic activity has been picking up around the country. And in some places — such as the seaside town I call home — business is booming for many.
Of course, there’s a delay in the figures from the ONS – it’s a lagging indicator. But much of the money people are making by selling ice creams, chips and rooms in boarding houses in my local area will likely feedback into the economy. People will buy more stuff from Next, Burberry, Halfords and other businesses. And the pattern will be repeating all over Britain.
It’s hard to imagine the third-quarter figure for GDP from the ONS being negative. It’s much more likely to be robustly positive, in my view. And when it is, the UK will be well on the way to economic recovery. And many astute entrepreneurs realise that one of the best times to start or expand a business is when the economy is turning up after a recession.
A great time to invest in UK shares
Recessions can strip the fat from bloated economies. So we tend to see less resilient businesses closing. Near the tops of economic booms, all sorts of strange businesses often start up. But when the economic tide recedes it becomes clear they needed booming consumerism to survive. A less cluttered playing field improves the chances for lean, effective enterprises to thrive when recovery arrives after a recession.
And economic downturns depress share prices too. Although stocks tend to act as a leading indicator, so the biggest falls were a few months ago in this downturn. But the businesses behind shares are well into recovery mode now in many cases. If you’re seeing strength in fallen share prices, it’s probably backed by good fundamental reasons.
Stock prices have been re-set, the recovery is here, and there’s a long road of potential general economic progress ahead for the UK. This could prove to be a golden period for UK investing and I plan to make the most of it.
