New Times,
New Thinking.

  1. Business
  2. Economics
10 February 2011

Why this could be the longest recession for 100 years

Currently, we are nearly three years in and there is still a long way to go.

By David Blanchflower

The National Institute for Economic and Social Research’s (NIESR) estimate of monthly GDP supports the MPC’s decision to hold tight. Its estimate of GDP suggests that output declined by 0.1 per cent in the three months ending in January after a fall of 0.5 per cent in the three months to December. January’s robust month-on-month growth (a rate of 0.6 per cent), NIESR suggests, is largely related to the recovery of output from the impact of adverse weather at the end of last year.

The most telling part of the release is that it finds that the underlying level of GDP “appears relatively flat over the last few months, suggesting the output gap is widening”. By the output gap, it means the level of spare capacity in the economy. The bigger it is, the lower inflation is and the higher the unemployment. Almost three years have passed since the onset of the 2008-2009 recession but the economy is still 4.25 per cent below the pre-recession peak (March 2008). Moreover, it is still around 10 per cent below where it would have been if growth had continued at the rate of growth experienced over the preceding five years.

 

The graph above shows the long slog the economy is going to face, even before austerity hits. It shows for four previous recessions and the current one — and how the recession progresses over time. So the blue line for the 1990s recession shows that i) output fell from peak to trough by less than 3 per cent; ii) after 24 months output had fallen by that amount c) after 36 months output was back to the level it had been at the start of the recession.

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com
Visit our privacy Policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

The current recession has been much deeper than that of the 1990s and much more comparable so far to the 1980s recession, which lasted for four years. Currently, we are nearly three years in and there is still a long way to go.

NIESR does not expect output to pass its peak in early 2008 until 2013, which would be around 60 months from when it started. So it would then be much longer-lasting than any of the other recessions that have occurred over the past century.

Worryingly, it could well be even worse than this still, unless the growth deniers running the coalition’s economic strategy reverse course soon.

Content from our partners
Water security: is it a government priority?
Defend, deter, protect: the critical capabilities we rely on
The death - and rebirth - of public sector consultancy