How to count a recovery
If it takes two successive quarters of falling GDP to enter a recession, how can a country emerge from recession with only one quarter of growth? In the past week or so, journalists have declared the recession over in France, Germany and now Japan. Of course, most reports rightly ask how long this will last and stress that a genuine recovery is far from certain.
Some people regard the two quarters definition of a recession as arbitrary and a bit silly, something supposedly cooked up by one of Lyndon Johnson’s economic advisers to avoid acknowledging a downturn until after the next election.
But it does serve a serious purpose: At least it reduces the risk that we’ll be misled by a statistical blip in one quarter’s data which might be revised away in the next release.
Regardless of its murky origins, economists and lay people around the world use the two quarters recession rule. So why not be consistent? Why not wait another quarter before we declare the French, German and Japanese recessions over?