The term "double-dip recession" has been mentioned frequently by financial experts in the last few weeks, but what exactly does this mean? Well, a double-dip recession is a long term macroeconomic trend which is characterized by a recession, a recovery and then a further period of recession. It is often a consequence of weak economic growth during the initial recovery period. The current double dip recession is now emerging globally, but what does this mean for the different regions of the world? (To learn about past recessions, read A Review Of Past Recessions.)
TUTORIAL: Economics Basics
There are many Americans who would claim that the current economic climate does not qualify as a double-dip recession, simply because there were never strong enough signs of a genuine recovery throughout late 2009 and 2010. In fact, a Gallup poll in April 2011 revealed that 29% of queried U.S. citizens considered the economy to be in a state of depression, with 26% of these believing this to be a continuation of the original 2008 and 2009 recession. While experts and laymen may disagree as to its nature however, there is little doubt that the U.S. is entering an additional period of recession.
While the economic portents may have eased slightly since the Christmas of 2007, home prices have still fallen to their lowest levels since 2002, with values having dropped 50% in areas of Florida, Nevada and California. Troubled cities such as Detroit, which was once the heartland of the American automobile industry, now suffer from crippling unemployment figures as well as reduced public funding which has seen the closure of many schools. In short, an estimated 11 million homes are in negative equity and 14 million U.S. citizens currently find themselves unemployed nationwide. Without the capacity to invest and create a consistent influx of job, the U.S. government is powerless to prevent its current economic slump.
While the U.K. job and financial markets are certainly primed for a double-dip recession, it will not be on the scale of that expected to hinder the U.S. While retails outlets will suffer from reduced consumer spending, and the public sector and construction trades will encounter further job losses, the temporary job market is expected to remain steady to ensure that companies can at least grow tentatively. Also, as the government freezes tax cuts and reduces public spending, the Bank of England is coerced into keeping interest rates low and therefore creating a higher level of disposable income among families.
There is still trouble ahead. While interest rates are kept low increasing unemployment will mean that the government will earn reduced tax revenues, and this will effect the amount that the Treasury will need to borrow to maintain public services. This perpetuates the cycle of boom and bust, and was the beginning of the U.K.'s economic problems in 2008. There is also a wider social impact of redundancies and unemployment in the U.K., with youth unemployment soaring and leading to a growing feeling of resentment and detachment amongst the nations so called "lost generation." (For more read Explaining The World Through Macroeconomic Analysis.)
You are probably in need of some good news by now, and despite the eurozone crisis afflicting nations like Greece, it is predicted that Europe will escape with merely sluggish growth throughout 2011 and 2012. Though the second financial quarter of 2011 increased the risk of Europe being exposed to a double-dip recession, forecasts from Standard and Poor's suggested that this may be avoided. These figures lowered the anticipated growth for the eurozone from 1.9 to 1.7%, which though unwelcome is not enough to suggest a period of double-dip recession awaits.
There are several causes for optimism in the eurozone, including a still buoyant demand from emerging markets and an economy that is still showing signs of long-term growth and recovery, no matter how minimal they may be. In particular, corporate capital spending is predicted to increase, and this investment will be significant in providing a continuing boost to the economies of Europe. So while nations like Germany and France are experiencing growth that is marginal and less than anticipated at the turn of 2011, they are still prospering in comparison with the U.S. and even the U.K.
The Bottom Line
So, while a double-dip recession is undoubtedly set to influence nations across the globe, it may not be as damaging as some may fear, and it will certainly not have the impact of the Great Recession of 2008 and 2009. While the U.S. will suffer the most of the affluent nations, there are signs that the U.K. and Europe may still experience some semblance of economic growth throughout the next 12 to 18 months. (To learn more about the double dip recession, see Dangers Of A Double Dip Recession.)