The popular and oft-quoted definition of a recession is two successive quarters or more of falling output, usually referred to as the ‘technical’ definition.
It is of course not really very ‘technical’ – and surprisingly is entirely unofficial. It is an easily measurable and easily understood rule of thumb that suits headlines rather than analysis.
The ‘two successive quarters’ criteria does however make the useful point that a recession must be a sustained fall in output, so in terms of official data – always quarterly – at least six months
In the US, there actually is an official definition of recession. The Business Cycle Dating Committee of the National Bureau of Economic Research – composed of academics – dates the peaks and troughs of economic activity to the month, going back to the mid nineteenth century.
The committee looks at various indicators – estimates of monthly GDP, employment, working hours, real income and trade – to identify “a significant decline in economic activity, spread across the economy, lasting more than a few months”. But of course this can only be done retrospectively – June 2009 was only established as the trough of the latest recession in September 2010. This highlights the problem with GDP as a measure – it’s always out of date. While every other prominent economic indicator is published monthly, GDP data comes out quarterly, a month after the end of the period in question.
Measuring the output of an entire country is of course inherently difficult, but in an attempt to be more timely, some analysts estimate GDP on a monthly basis. In the UK, the most notable work in this field has been undertaken by the National Institute of Economic and Social Research (NIESR), who make an important distinction:
“The National Institute interprets the term “recession” to mean a period when output is falling or receding, while “depression” is a period when output is depressed below its previous peak”
The impact of a recession doesn’t end when growth resumes – assessment of the full effect should also include the recovery period, as the economy returns to previous levels of output.
Most advanced countries aren’t currently in recession. Yet if we measure the strength or otherwise of their recoveries by how far current output is away from the pre-recession peak this makes grim reading for some. The table below, using quarterly GDP, shows how the G7 are faring:
France should have regained 2008 levels of output in the early part of this year, but Japan, the UK and Italy are still mired in depression territory.
NIESR data shown in our interactive graphic shows that the UK economy is now well into a fifth year of depression. This is already longer than the downturn of 1930-34 and next month the present period will overtake 1979-83 to become the longest period of depressed output for at least a century.
UK growth since the recovery started ended in 2009 has been in the order of 0.3 per cent per quarter, compared with an average of 0.8 per cent in the period from 1997 to 2008. At that rate it will take until late 2014 before the economy returns to something approaching normality – for the coalition government perilously close to an election year.
That this downturn is unlike any other is underlined by the fact that it’ll probably last longer than the Second World War – and anybody familiar with the UK will know what resonance that period still has in the folk memory.
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