Recession, Not Recession or Depression – What Is Going On?
Recession, Not Recession or Depression – What Is Going On?
What is going on? Since late 2008 we have had nothing but gloom and doom mixed in with hope and misinformation. One minute, we are told we are in a Recession, the next we are not and the market is picking up and then before we know it, we are back in a Recession or markets are struggling or collapsing. So, I decided to try to make some sense of this and help other to at the same time. Now, before we start, I have to tell you that I am not an economic genius or a mathematician, I am simply trying to make sense of all the varying and often contradictory news stories we have been seeing.
A recession occurs when the county’s economic growth activity declines in to negativity for two consecutive quarters.
What Is Economic Activity?
Economic activity is made up of what is known as Macroeconomic indicators such as Gross Domestic Production (GDP –this measures the Output Measure, Expenditure Measure and Income Measure of a Country (Output Measure – This is the value of the goods, products and services of all sectors of an economy such as Agriculture, Manufacturing, Energy, Construction, the service sector and Government etc. Expenditure Measure – This is the goods and services purchased by households and by Governments, investments in machinery and buildings. It also includes the value of exports minus imports. Income Measure – The value of income generated mostly in terms of profit and wages.)). It also takes in to account other factors such as Employment, investment Spending, Capacity utilization (This refers to the relationship between actual output that is produced with the installed equipment and the potential output that could be produced with it, if capacity was fully used), Household Income, Business Profits and Inflation Fall, while Bankruptcies and the Unemployment Rate rise.
A quarter is a period of time consisting of three months. Generally, Q1 or Quarter One refers to January to March, Q2 or Quarter Two refers to April to June, Q3 or Quarter Three refers to July to September and Q4 or Quarter Four refers to October to December.
What Is A Double Dip Recession?
A double dip recession occurs when the GDP falls back in to negative growth after a quarter or two quarters of positive growth.
What Is A Global Recession?
There is no commonly accepted definition for Global Recession but the International Monetary Fund (IMF – Created in 1944 and implemented in 1945 when 29 countries signed the Articles of Agreement. It originally had 45 members, the IMF’s stated goal was to stabilize exchange rates and assist the reconstruction of the World’s international payment system post World War II. Countries pay money to a pool through a quota system which countries with payment imbalances can borrow funds on a temporary basis. Today the IMF is an organisation of 188 countries), regard periods when global growth is less than 3% to be Global Recessions. The IMF estimates that Global Recessions occur over a cycle lasting between 8 – 10 years.
There is no agreed definition for Depression, however many would agree that generally this terms is given in line with sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession and is characterised by its length, abnormally large increases in unemployment and falls in the availability of credit.
OK, so we now understand the basics of what can create a Recession and the measures used to determine this. So now we shall look at the performances of the UK since 2008 and from this we will hopefully be in a stronger position to understand whether we have been in a Recession, are still in a Recession, have or are in a Double Dip Recession or whether we are on the verge or already in a Global Recession or Depression.
In Q1 2008 the GPD was 1.1% +0.3%
In Q2 2008 the GDP was 0.4% no change
In Q3 2008 the GDP was 1.8% -0.6%
In Q4 2008 the GDP was 4.8% -1.6%
In Q1 2009 the GDP was 3.0% -2.4%
In Q2 2009 the GDP was 5.6% -0.6%
In Q3 2009 the GDP was 8.6% -0.2%
In Q4 2009 the GDP was 7.0% +0.4%
In Q1 2010 the GDP was 6.9% +0.3%
In Q2 2010 the GDP was 3.2% +1.2%
In Q3 2010 the GDP was 5.0% +0.7%
In Q4 2010 the GDP was 5.4% -0.5%
In Q1 2011 the GDP was 4.6% +0.5%
In Q2 2011 the GDP was 0.5% +1.7%
In Q3 2011 the GDP was 6.6% +0.6%
In Q4 2011 the GDP was 7.7% -0.3%
You can see from the figures above that this shows that although we entered a Recession in Q1 2009, this lasted until Q4 2009 when we came out of the Recession. However, although the recovery was working well (with the exception of Q4 2010), in Q4 2011 we slipped back in to negativity which has also been the case for Q1 2012 and thus officially entering a new period of Recession.
However, as there was a period of 4 Quarters of consecutive periods of positive growth of the GDP followed by a further 3 Quarters of consecutive growth of the GDP, this does not mean that we have entered a period of Double Dip Recession as there was a sustained period of positive growth rather than a short lived period followed by further sustained negative growth.
This said, given the limited positive growth between Q4 2009 and Q3 2010 and again between Q1 2011 and Q3 2011, along with the sustained growth in unemployment and the falls in the availability of credit, and the length of time of which this has happened (i.e. 3-years plus), it could be argued that we are at least entering a period of depression. However this we would need to continue to monitor for a further two Quarters before we can accurately make this judgement.
So, what about a Global Recession? Is it possible we may have suffered this, well I think there is a strong argument to suggest that we have? If we look at the economic crisis in Ireland, Greece, France and Spain, it is very clear that this does in fact fall in line with the accepted definition by the IMF that we are indeed experiencing or will shortly be entering a Global Recession.
