What’s a Technical Recession?

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Technical Recession

Stats NZ figures showed New Zealand’s economy in recession over the second half of last year, so if you’re feeling the pinch, you’re not alone.

Aotearoa’s GDP decreased in the September and December quarters by -0.3 percent and -0.1 per cent respectively.

The pressure is on the government as the Budget looms, set for May. The coalition government can blame the last Labour government for new recession figures, but what happens next?

A technical recession is a specific term for a short-term decline in economic activity, whereas a full recession refers to a more general and longer-lasting downturn. Two consecutive quarters of negative GDP growth denote a technical recession.

Imagine a runner’s performance over time. A technical recession would be like the runner tripping and stumbling for a short while (two steps back). A full recession would be like the runner getting winded and slowing down significantly for a much longer stretch of the race (several steps back sustained over time).

A technical recession is a signal that could potentially lead to a full-blown recession. The media often uses the term “technical recession” because it’s a clear metric for identifying a downturn. However, economists use a broader range of data to assess the overall health of the economy and determine if a full recession is underway.

While negative GDP growth is the hallmark of a technical recession, economists may consider other factors, such as unemployment or consumer spending, to get a more comprehensive picture of the economic situation.

GDP growth serves as a trigger for identifying technical recessions, but it’s just one piece of the puzzle. Economists analyse a broader range of data to assess the overall health of the economy and determine if a more significant recession is underway.

GDP growth doesn’t necessarily translate to shared prosperity and only accounts for the formal market value of goods and services.

GDP focuses on market activity, but it doesn’t consider factors that contribute to a good quality of life, such as a clean environment, leisure time, or social cohesion.

Further, economic growth can harm the environment. Resource depletion or pollution is not reflected in the GDP figure.

Recognising these limitations, economists and policymakers are turning to alternative metrics alongside GDP.

These include the Human Development Index (HDI), which considers factors like education and health, and the Genuine Progress Indicator (GPI), which takes into account environmental and social costs.

By using a broader range of measures, we can gain a more complete picture of a country’s progress and well-being.