x Abu Dhabi, UAESaturday 29 July 2017

The natural recession

Talk of recession is everywhere these days, spouting regularly from the mouths of pundits, newscasters, reporters and bloggers.

Talk of recession is everywhere these days, spouting regularly from the mouths of pundits, newscasters, reporters and bloggers as stock markets spiral downwards. Yet despite the frequency with which it is bandied about, recession rarely gets defined. We may be "headed towards recession in Britain" or "on the brink" of one in the US. But when will we get there? How do we get out? Broadly speaking, recession is what you probably think it is: a period of slowing economic activity. Companies' profits plummet as consumers buy fewer of the things they make, forcing them to lay off workers, rein in expenses and cut back on expansion plans. Stock prices go flat or decline. Consumers pare spending, which feeds back into the recessive cycle.

There is no globally accepted technical definition of recession. Roughly speaking, however, a recession is a period of two consecutive quarters of shrinkage in gross domestic product. That, after all, is a reasonable approach: GDP measures the total value of goods and services produced in a country. If it falls, something is wrong. GDP fell by 0.3 per cent in the US in the third quarter of 2008, which means recession if it falls again this quarter. The same holds true for the UK, where third-quarter GDP fell 0.5 per cent. GDP, however, is an imperfect measure, and is often revised upwards or downwards months after it is reported. For that reason, economists take into account many other factors when they talk about recession, including unemployment, corporate profits and wages.

Happily, most recessions do not last long. Historically, a year or two is about par for the course. But many pundits are saying the current turmoil could easily produce a downturn the likes of which we haven't seen since the Great Depression. And that one lasted about 10 years, from 1929 to roughly 1939. mjalili@thenational.ae