| Mick James ponders whether the recession is really over.
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| A rather big middle |
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| | By Mick James
I was just glancing
through the papers on
Monday morning and I
spotted this headline in
the Times “UK recession
is over”. That’s nice I
thought, and went on to
catch up with some of
the more serious news,
such as England’s recent
win in the Ashes and a
heated debate over
scented candles which
seems to have captured
the attention of half
the commentaries.
But then I thought,
recession over? Isn’t
that quite important? So
I read further.
The source is a
survey by the ICAEW
(Institute of Chartered
Accountants of England
and Wales) reporting a
surprise upsurge in
confidence among UK
businesses. And the
ICAEW is confident in
using this surge as the
basis for a prediction
of a 0.5% growth in GDP
in the third quarter of
the year. But even if
that’s the case, can we
then conclude the
recession is over?
It turns out that the
definition of what a
recession is and when
it’s over are far from
clear cut. Everyone
thinks that two quarters
of shrinking output add
up to a recession, but
then you discover that
economists sneeringly
refer to that as the
“newspaper” definition,
preferring to think of
recessionary and
expansionary periods
which stretch between
the peaks and troughs of
the economic cycle.
Naturally this aspect of
economics has not been
studied much since
Gordon Brown “boom and
bust.”
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The first thought
that occurs to me is
that these “technical”
definitions are about as
much use to the average
person as those annoying
folk who sidle up to you
at parties and tell you
that bananas are herbs,
tomatoes are fruit and
strawberries aren’t
really berries. All true
enough, I guess, but
until the news filters
through to the shelf
stackers at Tesco then
we’ll carry on as
before.
What’s clear from
this to me is that,
firstly, you can’t
confidently call the end
of a recession until
it’s been over for some
time. That comforting
little bump we’re
standing on might just
be the lip of a deeper
and more terrifying
precipice.
Secondly, while if I
fell down a hole, I
would clearly “bottom
out” at some stage and
possibly even raise
myself into a sitting
position. But I’m not
going to fall back out
of the hole.
The problem with the
notion of a “business
cycle” expressed as a
neat little sine wave is
that it makes everything
look so symmetrical, but
the down slope is
painful and destructive,
and the up slope takes
hard work to climb—at
least until we get back
into another period of
“irrational
exuberance.”
If we do see a return
to growth there are all
sorts of potential
pitfalls along the way.
For example, it’s no
secret that businesses
have been running down
stock and using up cash | |
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| | reserves but it’s not
clear at all to what
extent. If business
picks up, restocking
won’t be simple—because
we’re still in a credit
crunch and there’s no
cash anywhere. And
that’s if they’ve still
got enough staff left.
Our “economic crisis”
is in fact three crises,
or at least a
three-headed one—credit
crunch, negative growth
and unemployment—there’s
no guarantee an end to
one will solve the
others.
In any case I’m not
sure we’re finished with
this recession yet—there
are a few things to work
through, a few
uncomfortable questions
that need to be asked
before we go back to
“normal.”
In the meantime we
have that surge in
confidence. It may not
mean a return to growth,
but it means that at
least people who’ve been
putting things off may
feel strong enough to
make a few decisions,
and maybe ask a few
tougher questions. We
may not be about to
return to normal, but
possibly start to deal
with “normal for now.”
It may not be the end
of the downturn, more
the end of activity
being suppressed below
even what is appropriate
for our current
straitened
circumstances. Churchill
would definitely have
put this better but I
think this means we are
neither at the beginning
of the end nor the end
of the beginning, but at
the start of what could
be a rather large
middle. | |
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