Defining the Double-Dip..
Towards a Brief Taxonomy of W-Shaped Recessions and Some Analysis of Recession Types in Recent UK Economic History.
There has been much talk recently of a “double-dip recession” in the UK. What is a double-dip recession? The term does not appear to be defined academacally. A double-dip is clearly a W-shaped period of GDP growth, with a recession, followed by some growth, followed by another period of economic contraction. I am going to have an attempt to define the term and see which recent recessions, if any, have been double dip recessions.
As this is an essay about doubles I am going to trial two definitions of “double-dip recession”.
Type 1 Double Dip Recession.
A recession (two quarters of negative growth), followed by some quarters of growth that are BELOW TREND (say 2.41%) with no quarter of growth above trend followed by a quarter of negative growth. I would term this a strict definition of a double-dip recession.
One in which we never really got our walking boots back on first time round.
Type 2 Double Dip Recession
A recession, followed by some quarters of growth only 1 of which is above trend, followed by a further quarter of negative growth.
This looser defination points to a situation where the strong bounce back typical of a sharp recession is not sustained and a period of above trend growth does not compensate for the periods of negative growth.
A stuttering recession.
I have then looked at the Office for National Statistics datafile : National accounts: GDP: expenditure chained volume measures at market prices These give a quarter by quarter view of GDP movements from 1955.
The only recession between 1955 and the current one which meets the strict criteria of Type 1 is 1990 Q3 to 92 Q2 (with below trend growth until 93 Q1). Crucially to the commentary about our current recession, the recession of 2008-9 is not a Type 1 double-dip recession. Growth in 2010 Q2 of 1.17%, which is roughly annualised to 4.74% (healthily above trend). 2010 Q2 figures are still subject to revision but the revision would have to be sharply down to change this outcome. The 2008-2009 recession is not a Type 1 Double-Dip.
The situation is more varied when I look at Type 2 recessions. Those recessions that match the criteria are
- 1956 Q1 – 1957 Q1
- 1957 Q2 – 1958 Q2
- 1961 Q3 – 1962 Q4
- 1990 Q3 – 1992 Q4
Those that do not
- 1973 Q3 – 1974 Q1
- 1975 Q2 – 1975 Q3
- 1980 Q1 – 1981 Q1
I note in passing that 1973/4 recession had the second sharpest quarter of negative growth in the series, worse than 2009 Q1 and only “bettered” by the stand alone contraction of 1958 Q2.
It appears that for the UK it is slightly more usual for the economy to fall back into negative growth before it has had two quarters of good growth than not. Given how poor the fundmentals look for the UK economy over the next few quarters I think it likely that we will see a quarter of negative growth before what I think will be a long slow haul back to sustained close to trend growth. If you want to call this a double-dip recession than by all means be my guest but you also have to say that double-dip recessions are not that rare.