Recovery and what really matters
Much talk of recovery, ‘green shots’ and the start of the bottoming process in recent weeks and days.
Stephanie Flanders, of the BBC, had an excellent post up yesterday discussing various types of recession.
A sharp drop followed by a period of stagnation and then recovery.
A sharp drop followed by a sharp recovery.
A ‘double dip’ recession with a second down turn.
The Japan scenario of a drop followed by a long period of stagnation.
The computer font doesn’t do justice to this. A sharp drop, followed by a period of sharp recovery and then a gradual leveling off of growth.
FT Alphaville have also discussed a couple of other shapes in recent weeks.
Moody’s is introducing the “hook-shaped” scenario, which has the steep downturn signalled by the U-shaped scenario, but neither the steep but delayed rebound of the U scenario, nor the flat stagnation of the L-shaped scenario.
And the “diminishing sine wave.”
Which I won’t attempt to describe – go look at the picture.
Which is correct? Very hard to say. I hope, and suspect, we’ve done enough to avoid the dreaded ‘L’. I don’t think a ‘V’, in the absence of easily available credit, is that likely either.
I’m increasingly leaning towards the ‘square root’.
But, to an extent, this is all irrelevant to most people. Economic growth can come from a large variety of sources – consumption, government spending, exports, investment, etc.
Countries can experience strong growth without most people seeing the benefits. Equally economies can stagnate for years without too many ill effects on people. The Japanese economy essentially endured 15 years of almost no growth and yet unemployment was consistently below 5.5% and averaged 3.8%.
What matters to me is unemployment. Even if the economy starts growing early next year, it is unlikely that unemployment will start to fall straight away. Unemployment policy is now central to the agenda, an issue on which the Tories are very quiet.