Avoiding a double-dip recession

The Confederation of British Industry (CBI) believes that the UK will avoid a double-dip recession this year, with modest GDP growth in the first quarter.

The CBI is forecasting growth of 0.2% in this quarter, which would reverse the -0.2% we saw in the final quarter of 2011.

As long as the UK economy does not deliver two consecutive quarters of negative GDP, the technical definition of a recession is avoided.

They expect the UK economy to grow by 0.9% in 2012 followed by 2% GDP growth in 2013.

This predication is in stark contrast to other warnings about the health of the UK economy in 2012.

BDO, a services firm, believes company turnover is continuing to fall. This is an indicator of a likely recession.

The Chartered Institute of Personnel and Development (CIPD) published a survey which found employers are likely to lay off more staff in 2012, leading to higher levels of unemployment.

UK unemployment could rise to as high as three million in 2012 as a result of the stagnant economy.

Whether the UK avoids a return to recession or enters a so-called ‘double dip’ recession in 2012, the economic outlook remains relatively bleak. We are still reliant on a swift resolution to the debt crisis in Europe to ensure economic growth is possible this year.

Regardless of the direction of the economy, investors should keep in mind that economic and market performance are not always closely correlated.

It is perfectly possible (and plausible) for stock markets to perform strongly against a backdrop of a poorly performing economy, as the success of companies is dependent on other factors. This is particularly the case in the UK where much of the revenue from the largest companies is derived overseas.

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