Double dip recession: time to panic?
Figures this released by the ONS on this week show that the UK has officially entered a recession; the second recession the UK has suffered in three years. David Cameron has said that these figures were very disappointing while Ed Miliband has called them catastrophic. But how catastrophic is a double dip recession for the UK? There are a number of reasons to doubt the media’s, and some politicians, doomsday predictions.
First, a technical recession has a very strict definition, namely two successive quarters of negative economic decline. Such a rigid definition gives rise to anomalies. It could be argued that the UK is currently in one of those anomalies. In 2011Q4 the UK’s output fell by 0.3%, in 2012Q1 it fell by 0.2% (preliminarily). Compare this to the last UK recession, which began in 2008Q2 and finished in 2009Q2, where the average quarterly fall in GDP was 1.5%. Granted no one can be sure where this current downturn will end but to compare both periods like for like by defining them both as a ‘recession’ is nonsensical.
Second, it is important to look at the economic performance of the UK prior to the current recession. In the four quarters prior to the recession (2010Q4 – 2011Q3) GDP grew 0.2%. Moreover, GDP growth between 2010Q3 and 2011Q4 has alternated between positive and negative rates every quarter. This low average level of GDP growth and large fluctuations in GDP growth during the year prior to this recession is more worrying for the UK economy than the last two quarters of very small GDP contractions.
Third, GDP growth in services actually rose during 2012Q1, after falling in 2011Q4. Services accounts for a vast majority of the UK’s total output and growth in this sector will be vital for a prosperous UK economy in the decades to come.
Although the UK economy is going through difficult economic times, critiquing the rhetoric that many politicians and media outlets spew can result in much different conclusions. Perhaps policy makers should be less concerned with avoiding a double-dip recession and more concerned with creating a long-term stable environment for UK businesses and the public.
May 28th, 2012 at 2:26 pm
I agree with your conclusion and the double-dip recession that seemed certain to me has now become a reality despite all of the Government tinkering. I agree with you on the point of taking a longer term view rather than simply managing the short term pain.
October 13th, 2014 at 3:09 pm
I found your blog quite intriguing.
I agree with Cheap accountants comment.A long term view in managing/curing an economy does seem more sensible as this will help minimize the chances of an economy falling into a depression(by solving the root causes) and even if it does,the effects will not be that great and can be managed easily to again stabilize the economy again.
October 14th, 2014 at 4:38 am
Recession is a scary phase for any economy, especially those in African hence they are still developing. With the current socio-economic challenges such as HIV and poverty, recession always puts a strain on these economies and eventually leading to an increase in unemployment and poverty.
October 14th, 2014 at 1:58 pm
Although the recession occurred in 4 successive quarters i still believe that for a developed region such as UK yet it is still too soon to trigger panic button, firstly government can control it by increasing its spending or decrease tax for people to increase their spending or even give producers incentive to attract more buyers. Hopefully any mean to increase the spending will enable the economy to recover but on the other hand just as you said they should focus on strategies that will enable long term recovery.
October 15th, 2014 at 9:36 am
it seems like double dip recession is a certainty very enlightening article
October 16th, 2014 at 7:38 am
Personally I believe that there is no need to panic government always have a way of solving such uncertainties. They will either increase their spending or decrease consumers tax in order to increase consumers spending. Therefore recession will unlikely affect consumers in short run.
October 16th, 2014 at 8:47 am
Duoble Dip depresiion has has a ripple efeect on the global economy most importantly to developing country in africa