Recession 2024: Last week, surprising economic data revealed that both Japan and the UK are now facing a recession, causing concern as the UK gears up for possible national elections in 2024. Adding to the worry, Germany, another G7 member, might also be heading in the same direction, as the Bundesbank stated on February 19 that their economy was not showing signs of recovery. But what does it mean when we say a country is in a recession?
What is Recession?
What is commonly known as a recession is defined as two consecutive quarters of year-on-year (YoY) contraction in a country’s Gross Domestic Product (GDP). As such, both Japan and the UK have seen their GDP shrink on a YoY basis in July-September 2023 and October-December 2023. The GDP of Germany, meanwhile contracted by 0.3 percent in the last quarter of 2023 and is expected to shrink again in the first quarter of 2024, according to the German central bank.
| Country | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 |
|---|---|---|---|---|
| Japan | 4.4% | 4.0% | -3.3% | -0.4% |
| UK | 0.2% | 0.0% | -0.1% | -0.3% |
| Germany | 0.1% | 0.0% | 0.0% | 0.0% |
The term commonly used in the media for the described economic scenario is a ‘technical recession.’ According to this definition, India also experienced a recession in the first half of 2020-21. During this period, the GDP contracted by 23.4 percent in April-June 2020 and by 5.7 percent in July-September 2020. This downturn was attributed to the nationwide lockdown imposed to curb the spread of the coronavirus, bringing the economy to a standstill.
Understanding Recession
Certainly, the widely known rule of two consecutive quarters of GDP contraction is a simplified guideline. In reality, identifying a recession is a more intricate task.
The National Bureau of Economic Research (NBER) in the US provides a more nuanced definition, describing a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months.” The NBER, responsible for identifying recession periods in the US, emphasizes the need for a comprehensive assessment of economic conditions. This evaluation is carried out by its Business Cycle Dating Committee.
The NBER emphasizes that there is no rigid rule for determining what measures are considered or how they are weighted in the recession identification process. However, in recent decades, the two measures given the most importance are real personal income less transfers and non-farm payroll employment.
Is there an indication that developed countries are moving toward a recession?
Defining a recession isn’t straightforward since there’s no official standard. The widely accepted technical definition involves two back-to-back quarters of economic decline.
It’s important to note that when the National Bureau of Economic Research (NBER) determines if the US is in a recession, it usually involves looking at various data points, and most identified recessions end up showing two consecutive quarters of GDP contraction. However, there are exceptions where periods labeled as recessions don’t strictly follow this rule.
Economists suggest that the current decline in the UK’s GDP may be temporary. They pointed out that the major contributors to the drop in household consumption in the second half of the previous year were spending cuts on recreation, culture, miscellaneous goods, and services, and transport. These are aspects of spending that can recover as real incomes improve.
India’s Economic Outlook
As for India, there’s less concern about a recession, given its impressive higher-than-expected growth rates, securing the position as the world’s fastest-growing large economy. The nation’s economic strength becomes evident, even in the face of global uncertainties. While India faced a temporary setback with negative growth in two consecutive quarters in 2020 due to the unprecedented pandemic impact, the current trajectory showcases a robust recovery. The resilience displayed by India’s economy remains a noteworthy aspect amid evolving global economic landscapes.
