Recession’ll end soon: The joy of maths

In the pre-budget speech, Alastair Darling predicted a deep but short recession, ending next year. This made me think what a joy maths is for political spin. Remember technically a recession is “two successive quarters of negative growth (shrinking)”. Let me use an example.

What recession ending really means…

GDP (Gross Domestic Product) basically means the size of the economy, for ease of numbers lets imagine…

UK GDP = £1,000 billion (it’s actually bigger)

Recession then means two quarters of shrinking economy. We know it’s deep so let’s now imagine the economy contracts by 1% a quarter (3 months):

After quarter 1: UK GDP = £990 billion
After quarter 2: UK GDP = £980 billion
After quarter 3: UK GDP = £970 billion
After quarter 4: UK GDP = £961 billion

So a year on we’ve seen the economy shrink by £39bn or 3.9% in a year. Now imagine after the next quarter the economy now jumps to £962 billion, still massively smaller than it was when the recession started. Yet as this is growth of 0.1% the recession is technically over. More so technically even if the economy then shrunk again the next quarter we wouldn’t be in recession because two negative quarters are required.

So when you hear politicians talk about the end of the recession, they may not be talking common parlance. It doesn’t mean things have gone back to how they were. It simply means things have stopped getting any worse.

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