After the financial crisis last year everyone starts talking about an economic recession coming this year. Are we in a recession already ? Do we know for sure we will run into one ?
To answer that question we first would have to come up with a clear definition of what a recession is supposed to be. Unfortunately there are different definitions available. Some speak about a recession if we encounter an economic stagnation. And if you would guess that there are multiple definitions for stagnation available you would guess right. From slow growth ( < 2-3 % ) to slower than potentially possible growth to 0 growth to negative growth – everything could be a stagnation.
A most common definition of recession I have been reading elsewhere and also in Wikipedia is: the reduction of a country’s gross domestic product (GDP) for at least two quarters. What I had been reading elsewhere has been a bit more specific: at least – 0.5 % for two consecutive quarters.
So, according to these definitions – are we in a recession already ? Well, I guess the thing is: we don’t know yet, since we haven’t done the number crunching yet. U.S. Department of Commerce reports a –0.5 % in third quarter 2008, but there are no numbers yet for quarter # 4. The German Statistische Bundesamt shows a zero point something growth for third quarter, if I read that table right. We might be in a recession, but we don’t know yet.
Will we run into one ? I guess: yes, simply because everyone is talking about this and everyone is expecting this. Besides the math one can come up with this is more the psychological effect behind a recession – a negative feeling about the economic future, a bad mood expressed by company leaders, by consumers of products, by investors and workers.
Those who believe in economic cycles like the Juglar cycle know for sure: after a financial crisis we have encountered last year a recession will follow automatically. The good news is: the phase afterwards will be a “recovery”.
A clear sign for me that we will run into a recession is the fact that one of my most valuable sources of information about the mood in companies – Dilbert.com – published a comic strip about exactly that topic as the very first one in 2009:
If you are able to laugh about this one you might be really ready for 2009 – mood wise so to speak.