When it comes to recessions, 40 is the new 50

November 11, 2011

If it were about age, 40-somethings would cringe. But it seems a dead certainty that 40 now means 50 — or even higher — when it comes to predicting the chances of a recession taking place.

Going by past Reuters polls of economists, every time the probability hits 40 percent, the recession’s already started or is perilously close to doing so.

After the brief recovery period from the Great Recession, Reuters once again started surveying economists several months ago on the chances of developed economies stumbling back into the muck.

As the data get nastier and euro zone politicians wrangle over the sovereign debt mess, the probability goes higher. Just not high enough or fast enough.

The probability that Britain slides back into recession hit 40 percent in the Reuters poll this week, up from one in three last month.

The last time that happened was in July 2008, a few months before U.S. investment bank Lehman Brothers collapsed. The British economy contracted by 2 percent that quarter, its second contraction of 2008. And we all know what happened next. If 40 is the new 50, we’re in it.

“It is a very big thing to say we are going into recession … it is one of those things people are cautious sticking their necks out about,” said Alan Clarke, who said there’s a 75 percent chance of that happening.

But he’s one of only three economists in a sample of 22 who gave a probability above 50 percent.

“If you can’t have a recession during the biggest financial crisis since World War Two, when can you have recession?” said Clarke, 32, who swears he feels nowhere near 40, or even 50 — just on recession calls.

Clarke, who has been forecasting the UK economy for seven years and is one of the most accurate, does have a point.

Recent economic news in Britain has been dire. The economy has barely grown at all in a year. PMI data are pointing to a sharp slowdown. Unemployment is on the rise again. And the government has barely begun its austerity programme, which is expected to put hundreds of thousands of public sector employees out of work.

40 really may be the new 60.

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