There is a lot of talk about double-dip recession in the media at the moment. But what is a double-dip recession? Are all recessionary preiods the same? Hopefully this article will answer questions that you may have about this phenomenon.
Against a deteriorating economic backdrop, speculation about the likelihood of a “double-dip” recession has intensified. While a recession is generally defined as two consecutive quarters of negative growth, a double-dip recession occurs when an economy falls into recession, stages a recovery and then slips back into recession. Recessions can take a number of different forms. In a so-called “V-shaped” recession, the economy contracts and then, having reached its low point, recovers relatively quickly as built-up demand is released. In comparison, a “U-shaped” recovery occurs when the economy contracts sharply and then staggers along the bottom of the “U” before finally returning to trend growth. The “L-shaped” recession is probably the least desirable scenario of all: the economy falls into a serious recession and does not return to trend for a long time. Meanwhile, a double-dip recession is often expressed as a “W-shape” in which the economy falls into recession, hits the bottom and then experiences a short period of growth, after which it slides back into recession. The UK economy has grown in every quarter since the fourth quarter of 2009, with the exception of the last three months of 2010, during which the economy shrank by 0.5% (although this contraction was attributed largely to the one-off effect of exceptionally wintry weather). During the second quarter of 2011, the economy expanded by only 0.2%, compared with growth of 0.5% during the first three months of the year. Corporate balance sheets have improved, but government finances are in a poor condition, and inflation and unemployment remain a major problem. In a recent speech, Bank of England policymaker Andrew Haldane drew comparisons between the current environment of uncertainty and the aftermath of the Great Depression, when President Franklin D. Roosevelt stated, “The only thing we have to fear is fear itself”. Following the Great Depression, the UK economy did not return to its pre-crisis level for five years. In comparison, the US took seven years to recover, but then experienced a double-dip, returning to recession in 1937. The Organisation for Economic Co-operation & Development (OECD) has praised policymakers for their initial efforts to avoid a second Great Depression. Nevertheless, the OECD also highlighted the risk of a “Great Regression” if the authorities fail to show the same level of determination, warning, “Emergency, short-term actions that are not perceived to be part of a medium-term strategy will only bring short-term relief.”