Definition of recession
In the UK and EU a recession is a period of negative economic growth for two consecutive quarters. This means there is a fall in National Output and National Income for six months. Inevitably a recession will involve higher unemployment and an increase in government borrowing.
This diagram shows that there was a recession in 1981, 1991 and 2008-09. During these periods the UK experienced negative economic growth. (fall in real GDP)
Definition of recession in US
According to the National Bureau of Economic Research (NBER), a recession refers to a significant decline in economic activity, lasting more than a few months, normally visible in real gross domestic product, real income, employment, industrial production, and wholesale-retail sales. It is not quite as precise definition as UK and often there is a delay in announcing a recession because GDP data has timelags. (NBER on recession)
Definition of Depression
A depression is considered to be a much more serious recession. There is no commonly agreed definition, but a depression is likely to have some or all of the following characteristics.
- A fall in GDP of 10% or more.
- A fall in GDP for over 3 years.
- Unemployment over 20%
- Definition of Depression
Some define a recession as a period of rising spare capacity and rising unemployment. It is possible to have a ‘growth recession’ i.e. very low growth of 0.5% and people feel they are in a recession.
Sahm Rule and recessions
The Sahm Rule predicts a recession by a significant rise in three month average of the unemployment rate.
What is meant by the term deflationary recession?
A recession is a period of negative economic growth. Deflationary pressures imply a fall in aggregate demand. This leads to a lower rate of growth or a fall in GDP and consequently a lower inflation rate. Strong deflationary pressures may also cause inflation to become negative. i.e. a fall in prices known as deflation. definition of deflation
So all recessions have deflationary pressures. However, when people talk of a ‘deflationary recession’. They may mean a recession with an actual fall in the general price level. i.e A fall in output and deflation.
- Causes of Recession
- How long do recessions last?
- Balance sheet recession – a deeper form of recession where there is falling asset prices and firms and consumers are seeking to improve their balance sheets.