- Economists have a multitude of ways to describe recessions...
- But are any of them really helpful?
Trying to describe the severity of an economic slowdown is a tricky business – even for policymakers. Last week, Bank of England governor Andrew Bailey argued that the UK economy was facing a “long but shallow” recession, while Federal Reserve chair Jerome Powell thinks the US could still enjoy a “soft landing”. When it comes to describing the shape of recessions, we have a smorgasbord of options. But are any of these terms really helpful?
At the less creative end of the spectrum, economists like to talk about the ‘depth’ of recessions. This is calculated by measuring the drop in GDP from the peak of activity before the recession starts to the trough it reaches before recovery begins. The 1990s recession was relatively shallow, seeing a peak-to-trough decline in GDP of just 2.9 per cent. The pandemic-induced contraction in 2020 was far deeper, triggering a peak-to-trough drop of over 20 per cent.