Civil Engineering Reference
In-Depth Information
Figure 12.2
Business fluctuations
The solid black line represents the long-term growth trend around which economic
activity fluctuates.
Boom
Actual
Output
Growth
(New trend line)
Double-dip
recession
Economic
depression
Recession
Time
recession. However, when the sub-trend growth continues for several consecutive
quarters there becomes a worrying line between a recession and a depression. For
example, in April 2012 the UK economy still remained more than 4 percentage
points below its 2008 peak. This flat period of inactivity could well be categorised
as a depression. When an economy emerges from a recession with a short period of
growth but quickly falls back into recession, there is talk of a 'W-shaped' or 'double
dip' recession (as shown in
Figure 12.2)
. This occurred in the UK when the economy
experienced a trough between April 2008 and July 2009 and subsequently went
through a further period of negative growth from October 2011 to March 2012.
The language, terms and character of macroeconomic fluctuations are constantly
under review. It is interesting to note that the National Bureau of Economic
Research in the United States has formally moved to a position where a recession
is any period of diminishing economic activity. It identifies a month when the
economy reaches a peak of activity and a later month when the economy reaches a
trough - the time in between is a recession. For example, in the late 2000s recession,
NBER identified December 2007 as the peak of the previous economic cycle in the
US economy and June 2009 as the trough when the recessionary cycle was formally
declared complete (NBER 2010). In terms of
Figure 12.2
a new upward trend had
commenced, all be it far below the longer term growth path. In NBER's terms,
the business cycle is characterised by peaks and troughs in economic activity. The
period between a peak and a trough is described as a contraction or a recession,
and the period between the trough and the peak as an expansion. NBER does not
