A recession always comes in the end, but the matter of foretelling when is a hazardous exercise at best. Indeed, recessions can remain out of sight to policy-makers even when they have begun. In July 2008 the then president of the European Central Bank (ECB), Jean-Claude Trichet, declared while announcing an increase in interest rates that the eurozone’s fundamentals were sound. In fact, a recession had begun in the first quarter of that year.
The causes of recessions are also sometimes wrongly diagnosed – even in retrospect. For instance, the impact of exceptionally high oil prices and the response of central banks to those prices are still routinely ignored as causes of the US and European recessions in the aftermath of the 2008 crash. In recent months, the spectre of the next recession has begun to take shape. Growth has fallen in several large economies, even while the US, which is much further beyond its last recession than the eurozone, posted growth above 4 per cent in the second quarter of this year. Yet it is also far from clear what is causing the slowdown, especially when there are potential recessionary pressures originating from multiple directions. The prospect of an end to quantitative easing (QE) – electronically created money used to purchase government bonds – for the eurozone, with Italy’s economy deteriorating under this shadow; China’s sky-high corporate debt; the trade war between the US and China; asset bubbles in financial markets; and the sheer length of the present economic cycle all represent substantial dangers to ongoing growth.
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