by PATRICIA SABGA
Many economists have come around to the view that coronavirus disruptions will trigger a global recession.
More economists are warning of a recession in the United States, Europe and globally as coronavirus containment measures bring entire sectors of the world’s economy to a halt. Many have also compared the swiftness and severity of the coronavirus slowdown with the Great Depression that began in 1929.
Are we looking at a recession? Or a depression? And what exactly is the difference?
What is a recession?
A recession has traditionally been defined as two consecutive quarters or six straight months of negative economic growth. In the US, though, the National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
What does the NBER mean by ‘real’? And while we’re at it – what is GDP?
Real means “adjusted for inflation”. GDP stands for gross domestic product – a measure of the value all the goods and services produced by an economy within a certain timeframe.
Got it. So why do we care what the NBER says?
Because the NBER dates the business cycle – the peaks and troughs of economic activity – it actually has the measurements to determine when a recession is, well, a recession.
The NBER is not a government entity, by the way. It’s a private, non-profit, non-partisan research organisation. It also publishes really interesting working papers, like this one examining what the Spanish flu pandemic of the early 1900s can tell us about the economic fallout from coronavirus.
Understood. So how long can recessions last?
It depends. By NBER’s definition, a recession does not necessarily have to last a minimum of 6 months. And some downturns continue for well over a year. The Great Recession in the US started in December 2007 and lasted until June 2009. That’s 18 months in total. Nigeria fell into its first recession in a generation at the start of 2016 and did not emerge from it until the second quarter of 2017.
What made the Great Recession ‘great’?
The “Great” Recession earned that moniker because it was the worst crisis the US economy had experienced since the Great Depression of 1929. The name also turned out to be appropriate because it was the longest-lasting of the 17 recessions that the US has experienced to date.
What is a depression, then?
There is no set definition for a “depression”, but when a country is faced with a prolonged economic downturn that is measured in years, rather than quarters – then you can be pretty certain it is experiencing a depression. The Great Depression, for example, began in 1929 and lasted until 1939.
Could the coronavirus pandemic trigger a recession?
Most economists have come around to that view. Last week, the International Monetary Fund said it sees negative global growth this year, and warned that we’re facing “a recession at least as bad as during the global financial crisis or worse”.
Al Jazeera for more