Page last updated at 23:53 GMT, Tuesday, 10 February 2009

What is a global recession?

Unemployed workers at an employment office in Spain

Many individual countries are now in recession, and the world economy is flagging badly. Leading economic organisations and business leaders are talking about "a global recession".

But it is not easy to define. BBC World Service economics correspondent Andrew Walker looks at the tricky business of working out whether we are in "a global recession".


It really depends what you mean.

Even for national economies the word "recession" has more than one meaning.

It can apply to two consecutive quarters of declining output (GDP), a decline in annual GDP, or in the case of the US, it is the judgement of a committee of economists at the National Bureau of Economic Research.

But although there is more than one, these definitions are are widely used and understood.

That is less true of global recessions.

Some people are talking about one now, and for what it's worth, I have little doubt that by the end of this episode most people will agree that we have been through one. But what is it?

Different thresholds

Quarterly data are a problem at the global level. The International Monetary Fund (IMF) has concerns about the consistency across countries so it doesn't publish any quarterly global aggregates.

Whatever label we choose, the underlying reality matters a great deal to people who lose their jobs, have their incomes cut or whose business fails

So that brings us to annual figures and I have heard several different thresholds from IMF chief economists for judging whether a year counts as a recession.

Global output growth below 3%, 2.5%, and 2% have all been suggested.

Another idea is growth per capita of below zero. Global population grew at about 1.2% last year, which gives another, lower threshold.

Or some people just take recession to mean a very sharp slowdown in global growth.

There is also a wrinkle when it comes is adding up national output figures, in different national currencies.

The obvious thing to do is to use actual exchange rates, but that tends to make items produced in a developing country count for less than a similar item made in a developed one.

You can adjust for that by using made-up conversion rates known as Purchasing Power Parities, or PPPs.

If there is a global recession, it will be this year - let's hope no more than that.

So there are no real data. All we have to go on is forecasts.

The most recent one from the IMF is growth of 0.5% using PPPs, and minus 0.6% using market exchange rates.

If the forecast is right it's a recession by all those measures.

Political banana skin

But does it matter? For a journalist, it is more convenient to know for sure one way or the other.

Many people called 2001 a global recession, but the IMF decided it was a near miss. For the sake of balance I felt obliged to take account of that in how I wrote.

Whatever label we choose though, the underlying reality matters a great deal to people who lose their jobs, have their incomes cut or whose business fails.

It is also worth asking whether the word itself makes things worse, by depressing confidence.

It is arguable that when the National Bureau announced the current US recession, it added to the gloom on Wall Street - though it was a bad day for investors anyway.

There certainly is a history of wariness about using the R-word.

Last year the US Treasury Secretary Henry Paulson invented a new term - "down-climb".

It was such an odd choice that it really only succeeded in showing he was trying to avoid a nastier one.

In the more distant past, there's a story about a senior official in Jimmy Carter's US administration, an economist by the name of Alfred Kahn.

He was told off for frightening people by talking of recession and even depression.

So what did he do? Was he chastened?

No. He was witheringly sarcastic. He decided, the story goes, to substitute another word - banana.

The US was in danger of experiencing the worst banana in 45 years.

In a way it was a case of turning on its head a famous line from Shakespeare's Romeo and Juliet: "That which we call a rose by any other name would smell as sweet".

But this time it's not a rose that we can smell. It's an increasingly rotten banana.



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