MacroScope

How to count a recovery

August 17, 2009

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?

Comments
2 comments so far | RSS Comments RSS

very good point

Posted by Pedro | Report as abusive
 

Surely it is the human condition to be optomistic and therefore we need twice as long to confirm a recession, hoping the second quarter will prove the first false, and only one good quarter to allow us to celebrate a emergence from a recession. Our cup should always be at least half full otherwise humanity would wither away.

Posted by Nemoscar99 | Report as abusive
 

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