Does a technical recession really matter?

We are balancing on a knife-edge, but it doesn't matter where we fall.

Today, NIESR release their growth estimates. They will either chime with the OECD's figures from last week, and show us narrowly entering a technical recession (defined as two straight quarters of negative growth), or they will be more like this week's vaguely positive PMIs (for construction, services and manufacturing) and show us narrowly avoiding one.

As we approach the release of the official figures – on 25 April – more and more estimates get released, and the same story will come again and again (we won't be immune, either), until finally the ONS finishes the whole thing off in a quivering mass of statistics.

The problem is, distinction doesn't really matter. Actually, that's not quite true; to the political realm, it matters a great deal. It's the difference between Labour being able to tar Osborne as the chancellor who brought us back into recession, and the chancellor who just dampened the recovery. One might be remembered come the election, the other will probably be forgotten.

But in terms of what the figures actually mean, rather than how they can be spun, the most important thing to remember is that neither 0.1 per cent shrinkage or 0.1 per cent growth are actually very good. In fact, they are both abysmal.

The Touchstone bloggers have three good posts addressing just this; Duncan Weldon, quoting Paul Krugman quoting George Bush, calls it "the soft bigotry of low growth expectations." He writes:

We find ourselves in a ludicrous situation whereby the success or failure of the government’s economic policy is being measured, by many, almost entirely in terms of whether we have two back-to-back quarters of negative growth or not.

The BCC releases a quite gloomy forecast and many are prepared to call it ‘good news’.  

I’ve pointed out before that even if the economy grew by 1.5% in 2012 – twice as much as the OBR have predicted – this would still be a bad result. But expectations are so diminished that the Government might get away with hailing this as a success.

There is also the worry that, by redefining success to mean "not in recession", we are creating a self-fulfilling prophecy. If people think that growth is naturally low, they plan for and create low growth. Weldon quotes from Krugman's book The Return of Depression Economics (addressing Japan):

Analysts tended to assume that because the economy grew so slowly for so long, it couldn’t grow any faster.

Richard Exell adds that the PMI figures, although positive, are also well below what was normal before the recession (and the ONS figures, released as I write this, are even worse than that).

Jonathan Portes pointed out another pernicious side-effect of this rhetoric in March, after the budget. If the narrative that "the path of recovery is likely to be arduous, long and uneven" is accepted uncritically, then there will be a huge amount of unnecessary pain. It's not just that we won't grow fast enough. It's that measures to boost employment, invest in infrastructure and fix our broken housing situation are being wrongly dismissed as too expensive for a slow growth economy, when it is precisly those measures which will speed up the recovery.

Andrew Sentance proposes one solution: stop focusing on the technical definition of recession. It creates confusion, hides some problems and exaggerates others. By focusing on more important indicators, like unemployment, business activity, and a less volatile measure of GDP, success can no longer be defined as merely not failing. If that were the case, we would all benefit.

Could the fuel panic have pushed us out of recession? Does it matter? (Getty)

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Leader: Trump and an age of disorder

Mr Trump’s disregard for domestic and international norms represents an unprecedented challenge to established institutions.

The US presidency has not always been held by men of distinction and honour, but Donald Trump is by some distance its least qualified occupant. The leader of the world’s sole superpower has no record of political or military service and is ignorant of foreign affairs. Throughout his campaign, he repeatedly showed himself to be a racist, a misogynist, a braggart and a narcissist.

The naive hope that Mr Trump’s victory would herald a great moderation was dispelled by his conduct during the transition. He compared his country’s intelligence services to those of Nazi Germany and repeatedly denied Russian interference in the election. He derided Nato as “obsolete” and predicted the demise of the European Union. He reaffirmed his commitment to dismantling Obamacare and to overturning Roe v Wade. He doled out jobs to white nationalists, protectionists and family members. He denounced US citizens for demonstrating against him. Asked whether he regretted any part of his vulgar campaign, he replied: “No, I won.”

Of all his predilections, Mr Trump’s affection for Vladimir Putin is perhaps the most troubling. When the 2012 Republican presidential nominee, Mitt Romney, warned that Russia was the “number one geopolitical foe” of the US, he was mocked by Barack Obama. Yet his remark proved prescient. Rather than regarding Mr Putin as a foe, however, Mr Trump fetes him as a friend. The Russian president aims to use the US president’s goodwill to secure the removal of American sanctions, recognition of Russia’s annexation of Crimea and respect for the murderous reign of the Syrian president, Bashar al-Assad. He has a worryingly high chance of success.

Whether or not Mr Trump has personal motives for his fealty (as a lurid security dossier alleges), he and Mr Putin share a political outlook. Both men desire a world in which “strongmen” are free to abuse their citizens’ human rights without fear of external rebuke. Mr Trump’s refusal to commit to Nato’s principle of collective defence provides Mr Putin with every incentive to pursue his expansionist desires. The historic achievement of peace and stability in eastern Europe is in danger.

As he seeks reconciliation with Russia, Mr Trump is simultaneously pursuing conflict with China. He broke with precedent by speaking on the telephone with the Taiwanese president, Tsai Ing-wen, and used Twitter to berate the Chinese government. Rex Tillerson, Mr Trump’s secretary of state nominee, has threatened an American blockade of the South China Sea islands.

Mr Trump’s disregard for domestic and international norms represents an unprecedented challenge to established institutions. The US constitution, with its separation of powers, was designed to restrain autocrats such as the new president. Yet, in addition to the White House, the Republicans also control Congress and two-thirds of governorships and state houses. Mr Trump’s first Supreme Court appointment will ensure a conservative judicial majority. The decline of established print titles and the growth of “fake news” weaken another source of accountability.

In these circumstances, there is a heightened responsibility on the US’s allies to challenge, rather than to indulge, Mr Trump. Angela Merkel’s warning that co-operation was conditional on his respect for liberal and democratic values was a model of the former. Michael Gove’s obsequious interview with Mr Trump was a dismal example of the latter.

Theresa May has rightly rebuked the president for his treatment of women and has toughened Britain’s stance against Russian revanchism. Yet, although the UK must maintain working relations with the US, she should not allow the prospect of a future trade deal to skew her attitude towards Mr Trump. Any agreement is years away and the president’s protectionist proclivities could yet thwart British hopes of a beneficial outcome.

The diplomatic and political conventions embodied by the “special relationship” have endured for more than seven decades. However, Mr Trump’s election may necessitate their demise. It was the belief that the UK must stand “shoulder to shoulder” with the US that led Tony Blair into the ruinous Iraq War. In this new age of disorder, Western leaders must avoid being willing accomplices to Mr Trump’s agenda. Intense scepticism, rather than sycophancy, should define their response.

This article first appeared in the 19 January 2016 issue of the New Statesman, The Trump era