Readers Question: When will the Recession end?
Sometimes when it comes to making economic predictions, I am happy to stick my neck out. But, when it comes to predicting when we will see a sustained economic recovery, I find it quite difficult at the moment. In theory, the recession will have ended when we return to economic growth. However,, it is quite possible we will see positive economic growth but:
- Either growth will be very low (less than 1%) – with this sluggish growth, unemployment is likely to keep rising.
- A recovery will be followed by a second decline.
At the moment, there are a range of divergent economic statistics – some positive some negative. There are signs that the worst falls in output may have ended, but, this improvement is partly related to inventories. At the start of the year, firms slashed output and ran down stocks, now stocks are depleted output has picked up a little.
Despite signs of continued recession, the general feeling seems to be a little improved. Google trends suggest that searches for ‘economic depression‘ has fallen back to more normal levels. This may seem a little gimmicky, but, I think it reflects a belief, we have at least avoided a serious depression – a depression that did seem possible at the end of last year.
Recently, I wrote a piece – ‘Crisis averted?’ which stated (hoped) that a really serious depression has been averted.
Also, even when we see a return to economic growth, it may still feel like an economic downturn. Unemployment could rise to just below 3 million and it could take a long time to fall. Also, any economic recovery is likely to see a new age of austerity with efforts to deal with the underlying fiscal deficit.
There are also continued threats such as:
- If swine flu became a real pandemic, it could further weaken the economy and provide a further decline in demand.
- Possibility of more bank losses in Europe.