Is it time to start talking about a depression?
- 25 January 2013
- From the section Business
We now know that the UK economy contracted by 0.3% at the end of last year. This followed Olympics-flattered figures in the previous three months, when there was a bit of growth.
It continues the pattern of recent years, and every time there are two quarters of contraction in a row, we get excited about a recession, and then when there is growth again we get excited about the recovery.
Yet the UK economy is still considerably smaller than it was when the crisis started in 2008.
The influential National Institute for Economic and Social Research says we have been in a depression since then, and will not emerge until the economy reaches its 2008 level.
And yet the word depression has rarely been mentioned and some economists have gone to great lengths to avoid using it.
"I've been trying to use a different word," says Randall Kroszener, professor of economics at University of Chicago, who used to sit on the committee that sets US interest rates.
"I came up with the term 'sideways slide', which characterises where lots of economies are - not boom and bust, just sliding along, surviving."
Prof Kroszener says the key difference between a long recession and a depression is whether there are falling prices, or deflation.
The trouble is, while the definition of a recession as two consecutive quarters of negative growth is widely accepted, there is no popular definition of a depression, which means there is nowhere to go once recessions stop being relevant.
"The economy is either in high growth or in low growth, and we're on low growth," says Andrew Scott, professor of economics at London Business School.
"We're on a low trend so who cares about whether we're in recession or not?"
David Sproul, chief executive of Deloitte UK, says he is seeing the mood improving among his client businesses.
"We're seeing much less pessimism around, but not yet optimism," he says.
"We're in an environment of uncertainty, which is very sentiment driven."
But he adds that many businesses are still concentrating on cost control to grow profits, which suggests a lack of confidence.
So although some may be talking about the possibility of the economy going into a triple-dip recession, that will ignore the fact that the economy has been basically flat for about two-and-a-half years.
The answer may not be to call it a depression, but something is needed to get the narrative beyond the obsession with tiny bits of growth or contraction every three months.
The experts quoted in this article were all attending the World Economic Forum in Davos, Switzerland.