The Staggers

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How likely is a double-dip recession?

A quarter of negative growth is common but there hasn’t been a double dip since 1957.

By George Eaton Published 29 January 2011 11:44

This week's terrible growth figures have prompted renewed debate about the possibility of a double-dip recession. One way to gauge the likelihood of a double dip is to look at how frequently they have occurred in the past.

The graph below from Policy Exchange shows that it's not unusual for a period of post-recession growth to be followed by a quarter of contraction. For the purposes of their briefing, Policy Exchange defined such an event as a "double dip" (the technical definition is two successive quarters of negative growth).

Based on this definition, there were double-dip recessions in 1957 (GDP contracted in Q2 after two quarters of growth) 1958 (GDP contracted in Q2 after two quarters of growth, 1962 (GDP contracted in Q4 after three quarters of growth), 1974 (GDP contracted in Q4 after two quarters of growth) and 1976 (GDP contracted in Q2 after two quarters of growth) and in 1992 (GDP contracted in Q2 after two quarters of growth).

Indeed, as Policy Exchange's Andrew Lilico notes, the only recession not to be followed by a "double dip" was in 1980, on the basis that the initial period of contraction saw two quarters of negative growth (1979 Q1 and 1979 Q3) interrupted by a quarter of growth (1979 Q2). Thus, the first dip did not meet the standard definition of a recession (two successive quarters of contraction).

The last time that an official double dip took place was back in 1957 when GDP contracted in Q2 and Q3 after two quarters of growth. That will be of some comfort to George Osborne, although he would do well to prepare a defence strategy. He won't be able to blame the snow next time.

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23 comments

Sun, 2011-01-30 09:32 — Luddite (not verified)

Some folks really do need to get back into the real world. Dealing with Labour's appalling deficit is crucial to getting the economy moving and creating 'sustainable' jobs. Let's also never forget Ed Miliband and Ed Balls were at the heart of the previous Government that created this mess- and yet even now no credible alternative plan to clean up Labour's mass. The simple truth is. If we had listened to them, our debt would be almost £100 billion higher by the end of this Parliament and we would be paying £8 billion more a year in debt interest alone. That would along with falling employment take us back to the point of bankruptcy.

Sun, 2011-01-30 10:12 — matthew fox (not verified)

" Some Folks "
Well Luddite has been talking about
" Working Folk " so he must be talking about None Working and Working Folks.

George Osborne has killed the recovery, and offering us the worst of both worlds, recession, high unemployment, inflation and more businesses going to the wall.

When it comes to memory, Conservatives tend to forget so much.

Sun, 2011-01-30 12:58 — Luddite (not verified)

Matthew Fox. Can't remember which you are dick or liddy. Labour ran out of our money. Who ever said Labour's debt reduction would be easy. It's going to be a hard and painful road to economic sustainability.

Sun, 2011-01-30 14:10 — Hal (not verified)

The key point is that running a deficit is absolutely necessary in a recession to maintain demand in the economy and avoid a depression. This was the lesson learnt in the 1930s and is a standard part of economics. The previous Labour government got this response to the credit crunch absolutely right.

The interest payments on government debt are not a burden. Currently the government is borrowing for 10 years at 3.6%. This is equal to CPI inflation and less than RPI inflation. So the real interest rate is either zero or negative (depending on which measure of inflation you prefer)! This is certainly not a burden, more like the ultimate free lunch. There's a good reason for this: the economy has spare capacity which would/will go unused if not for government spending.

The deficit should be eased back as the economy recovers. The current government have done this too early with the obvious consequences.

There is no question of "running out of money". That's an absurd idea considering the government creates money in the first place. The whole point of the credit crunch was that the economy suddenly had too little money and the government had to create a lot of new money fast. The idea that too much was created is a conceit manufactured by the Conservative Party and other right-wing ideologues.

Sun, 2011-01-30 14:17 — matthew fox (not verified)

Come on Luddite, why would I want to sink to your level, where's the sense in that?

Strange how all this bad economic news has rattled you.

Sat, 2011-01-29 11:50 — Dave C (not verified)

Won't Wee Georgie Osborne use the excuse you've just offered?

Sat, 2011-01-29 11:51 — Livers (not verified)

The chart stops at 1992 not 2010?

Sun, 2011-01-30 20:01 — Charliechops1

The annual rate of growth of 1.4 percent is lower than that of the the OBR's projection in July 2010 but higher than the low point of their revision. Thus the outcome is likely to be within the range of their projection but towards the lower end of the fan chart. This is not a disaster nor is it very healthy. Those who are pessimistic should hold their fire. They would look silly if a revision in the figure for the last quarter and a sharp rise in prophecies of doom.

Sat, 2011-01-29 12:08 — Livers (not verified)

I also note that you omitted to cite Lillco's statement "A double dip recession will make it more important to cut spending early, not less
important."

Of course, Lillco does not correlate or present Consumer confidence against GDP growth, now that might be interesting, no?

Sat, 2011-01-29 12:06 — Shinsei67

One quarter of negative growth as an economy recovers from a recession is very typical.

However one quarter of negative growth isn't a double-dip. That requires two consecutive quarters of negative growth. And as your chart shows this is very unusual.

Sun, 2011-01-30 21:09 — Mike S (not verified)

Luddite - 'The simple truth is. If we had listened to them, our debt would be almost £100 billion higher by the end of this Parliament and we would be paying £8 billion more a year in debt interest alone.'

Source please.

Sat, 2011-01-29 13:08 — Hal (not verified)

@Livers. The only reason given by Lillco for continuing to cut spending is that the bond markets might not like it otherwise. There is no evidence for this politically-motivated claptrap whatsoever. This argument was wheeled out to justify spending cuts in the first place, but the UK has not had any problem selling bonds at low interest rates throughout the whole of 2010.

Sat, 2011-01-29 13:33 — Shinsei67

"The only reason given by Lillco for continuing to cut spending is that the bond markets might not like it otherwise."

It's not just the bond markets that are a worry, even more importantly is the currency market.

Substantially increasing government borrowing would just cause a further collapse in sterling (which has already fallen 20-25% against the dollar and the euro) and 40% against asian currencies.

A further fall in sterling just raises the price of all those essentials that we import - petrol, energy and food.

And inflation tends to hurt the vulnerable the hardest. Those on fixed and low incomes like pensioners and those on benefits.

Sun, 2011-01-30 22:20 — Luddite (not verified)

Mike S, are you for real.. Source? Have you being asleep, are you some kind of "Rip Van Winkle" Labour ran out of our money.. You can't keep spending, what you no longer have and you can't borrow your way out of debt. That is not rocket science.

Sat, 2011-01-29 16:07 — frances smith (not verified)

yes, but we haven;t had a tory government as bonkers as this since the 1930's. though statistical trends are interesting, they are history, and circumstances change.

given the downward trend of the last two quarter growth figures, and that there has been nothing done to promote growth since the coalition came into power, the opposite in fact. it would seem to me quite likely that the trend is going to continue downwards, and thats without snow.

Sat, 2011-01-29 16:16 — frances smith (not verified)

the only thing that is likely to assist osborne is that there is a worldwide recovery and us economy has started to grow, but given the size of the fall in the last quarter i doubt that that will be enough.

Mon, 2011-02-07 20:04 — John raymond (not verified)

They have.. run the country aground
its, evey man for him self .....

Sat, 2011-01-29 16:59 — Hal (not verified)

@Nick We learn recently the Bank of England has been deliberately pushing the sterling exchange rate lower. It isn't a "collapse" but a deliberate policy.

Monetary policy should be conducted to balance the risks of inflation on one side and unemployment on the other. If you veer to one side or the other that is a political choice.

I understand you want to have higher unemployment, destroying the lives of a minority so that the majority can keep up the interest on their savings and enjoy cheap petrol. But I don't agree with it.

Sat, 2011-01-29 17:15 — Reginald-Fah-fah

I agree with Nick!!! Not Nick Clegg,the blogger Nick above.

Tue, 2011-05-03 11:51 — Tim Rendall (not verified)

that's certainly true, it is every man for himself. I could see where this was all going way back in 2002 so we piled everything into clearing our mortgage by 2006. The recovery is solely due to the falling value of the pound helping our exports.We need to be more protectionist about awarding contracts to British companies for projects such as the Paddington to Bristol railway electrification. Manufacturing is the way out in the long run and we should pull out of Europe and go it alone. You can only spend what you earn at the end of the day

Sat, 2011-01-29 20:29 — ang (not verified)

Myself and lots of other people are thinking twice, before purchasing things that are not essential, as we are wondering whether we are going to have a job in the coming months.
The govt is telling us, (the stupid public) that they have to deal with the deficit first, that is what any household would do. Yet if the public start reining in their spending, due to their vicious cuts, they are like, 'well er, we actually didn't mean stop spending folks cause that would 'der', affect the economy like.
Never saw that coming Osborne. Idiot! They just don't get it!
Double dip is inevitable, due to their actions. Shame on them.

Sat, 2011-01-29 23:01 — Hal (not verified)

Actually the bottom of the article quoted from "Policy Exchange" explains itself thus:

"Our mission is to develop and promote new policy ideas which will foster a free society based on limited government..."

So the answer to any question about cuts is already provided in the mission statement. It is a puff-piece designed to come to this conclusion, not a serious attempt at logical argument.