THE BLOG

Triple Dip Recession or Depression?

29/01/2013 14:25 GMT | Updated 28/03/2013 09:12 GMT

I love the way macroeconomists come up with new terms to describe things that already exist, in an attempt to cover up the fact that something bad is happening again. Last week a new term entered the debate, a 'Triple Dip Recession' apparently this is the new stage of the economic crisis in the UK, or at least that is what the politicians and economists are claiming.

A recession occurs when you have two or more quarters of negative growth in an economy, a 'Double Dip Recession' occurs when after a recession the economy rebounds and then falls back into recession again. So supposedly a 'Triple Dip Recession' is when an economy rebounds after the second period of negative growth and then falls back into negative growth again.

Although the economy has not quite entered the third period of negative growth, as it has only had one quarter of negative growth and it needs a second to confirm it, it is pretty likely that it will. In fact I am dubious as to whether it should even be considered a recession anymore if it does. For prolonged periods of negative growth the correct term to define an economic downturn is depression.

I personally believe that if the next quarter continues with negative growth it will enter depression, which is a very different type of economic scenario requiring more radical action than a recession. By terming the situation as a recession, even a 'Triple Dip' recession the view is that it will soon be over and little action is needed to resolve it. The current position of the government of little investment and cuts would come under scrutiny if the situation was deemed a depression.

Rather than seeing the depth of the problems and declaring the true state of the economy the government and economic community has largely denied the extent of the economic downturn to maintain their current policy. Nick Clegg has made some rumblings that the government cut capital spending too fast, but that is still not an admission the economic downturn has or is about to enter a depression.

The only possible rebuke which could be taken by the government is that the downturn is one of stagnant growth rather than negative growth. If that is the case then the economic crisis is more reflective of the downturn seen in the 1970's rather than the 1930's great depression. However I find that position impossible to argue if the UK economy does indeed enter a third period of negative growth.

I think the government needs to apply a policy of honesty in regards to the economy to prevent poor long term personal financial planning. If they continue to tell people the problems will blow over soon then people will make life changing decisions they might not have if they knew the true extent of the situation when they made them.

Perhaps I am a pessimist but if you take into consideration the impact the economic problems in the Euro Zone could create for the British economy, which you can read about here, then you will appreciate it is not just domestic issues that determine the UK's economic future.