Quite when a recession is really over is one of those angels and pins arguments. There’s a technical definition which is simply when the economy stops shrinking, but there’s a number of other ones that could be used and are in fact used in certain lines of argument. It would be logically permissible to allow someone to insist that the recession is over when GDP surpasses its previous peak for example, something that my native UK managed a year or so back. Or we might want to take population into account, and say that it’s only really all over when GDP per capita capita breaks that peak: and that’s what’s just been announced today. There are two other possible definitions which we’ll come to in a moment but firstly, the news itself.
UK economic growth accelerated in the second quarter of the year, helped by a big jump in oil and gas production, official figures have shown.
The UK’s economy grew by an estimated 0.7% in the April to June period, the Office for National Statistics (ONS) said.
That compared with growth of 0.4% in the first quarter of the year.
Output in the economy during the second quarter was 2.6% higher than the same period a year earlier, the ONS said.
Just for the avoidance of doubt, Britain’s Office of National Statistics reports quarterly GP figures. So, that 0.7% cannot be compared to the various numbers that the US uses, for those are reported on an annualised basis. That is, the US figures are what growth would be for the whole year if growth was the same speed as it was just this quarter. The UK figures are just what it was this quarter. That 2.6% figure there is not equivalent to the US method either, for that’s what cumulative growth was over the past 12 months, not what growth would be over 12 months if it were at the speed of this past three months.
All slightly confusing and possibly trivial as well but I lay it out as 6 months back there was one unfortunate American financial writer who sneered at how slow UK economic growth was. On the basis that he didn’t understand it was that quarterly, not annualised, figure. No, I’ll not name him, it’s useful to recall the error but none of us need to have such errors forever linked to our names, although some will recall who it was and where.
This puts the UK economy back above the previous peak of GDP per capita :
The ONS itself says GDP per head, generally taken as a better guide to prosperity than mere GDP, is “broadly equal”
to the pre-crisis peak hit back in early 2008.
Broadly equal is enough for us here: no measurement of something as complex as the economic output of 65 million people is going to be exactly accurate after all.
But there’s those other two methods of thinking about it. And the first of those is that it’s really only over when we get back to the same position that we would have been without the recession happening. That is, what if we looked at what trend growth had been (and take a long look at it too, over 30 years say) and then say that the recession, sure, it knocked us off that path. But then perhaps we’ll get a burst of growth after the recession and we’ll get back to where we would have been. So, to illustrate the different ideas, this from Stephen Williamson :
Now that’s all a bit wonktastic as it’s natural logs and all too few of us know what those are. But that light blue line shows that the Depression started in 1929/30, the shrinking of the economy was over by 1933, 1934 or so, another blip in 1937. And so by the usual definition of a recession it was over by 1933. But the US economy didn’t get back to its previous peak until perhaps 1941, and the per capita number would have been later than that given the growing population. But this last definition of the recession being over would have come perhaps in 1950, 1951, when the American economy was back to the size it would have been if the Depression had never happened. and we’ve most certainly not reached that yet.
In fact, there’s a number of people out there trying to tell us that this Great Recession has permanently destroyed some part of the economy’s ability to produce growth, so that we’ll never actually catch up with where we could have been. I don’t think I buy that myself as just about everyone making that argument then goes on to state that this means that we must all follow that plan he happens to have in his pocket. A plan which, given my cynicism, I suspect he would be selling whatever else was happening.
And then of course there’s that final, final, possible definition of when anything is over which is when the Fat Lady sings. But I wouldn’t want to be ungallant enough to suggest who could perform that service for us.
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