This week the OECD warned that the UK is probably back in recession. According to their forecasts, the economy will shrink in the second quarter of this year. Since it follows a contraction in the fourth quarter of last year, that will make it a recession. Officially. The dreaded double-dip recession will be a reality.
Time will tell whether the OECD is right or not. We might just scrape through with fractional growth, and then we’ll have another quarter to play with – to be a recession, you have to have two consecutive quarters of contraction.
That’s a nice simple definition, but it’s easy to get fixated on it. As long as we aren’t in a ‘technical recession’, the government can claim that we’re making progress and on the road to recovery. It’s always looked like it was going to be a double-dip recession to me, as I wrote two years ago, but so far we’ve been very lucky. Every time the economy drops a quarter, it picks up on the next. It’s a weak and jittery performance, but since we haven’t technically dipped into recession, the politicians can continue to justify the austerity strategy.
Unfortunately, that technical definition lulls into a false sense of security. GDP statistics aren’t the only measure of economic health. Things like unemployment, housing, real incomes, and quality of life are far more significant to most people. And those aren’t looking good. The unemployment count has risen, and the end of the official recession appears to have made no difference whatsoever to those figures. Real incomes have fallen for the first time since 1981. According to the Institute of Fiscal Studies, incomes will fall 7% between 2009 and 2013, and we’ll have 600,000 more children living in poverty. So if we’re poorer and jobs aren’t being created, who cares what the GDP figures say? The recovery is purely statistical.
Perhaps we need a broader definition of recession, including unemployment figures so that there couldn’t be any such thing as a ‘jobless recovery’. Or maybe it should be tied to income, so that a growing GDP that didn’t filter through to ordinary people wouldn’t count.
Better still, perhaps we should just stop obsessing over GDP. There are plenty of things that you can do that will boost growth without fixing any of those other problems – borrowing is one, and allowing inequality to boom is another. We should focus on what’s broken instead, and keep GDP where it belongs – as one tool among many.