What is Double-Dip Recession?

A double-dip recession is when gross domestic product (GDP) growth slides back to negative after a quarter or two of positive growth. A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession.

Key Takeaways

  • A double-dip recession is when a recession is followed by a short-lived recovery and another recession.
  • Double-dip recessions can be caused due to a variety of reasons, such as prolonged unemployment and low GDP.
  • The Great Depression was a period of double-dip recession of high unemployment. The last double-dip recession in the United States occurred during the early 1980s.
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What Is A Double Dip Recession?

Understanding Double-Dip Recession

The causes for a double-dip recession vary but often include a slowdown in the demand for goods and services because of layoffs and spending cutbacks from the previous downturn. A double-dip (or even triple-dip) is a worst-case scenario. Double-dip or triple-dip signals are signs that an economy will move back into a deeper and longer recession, making a recovery even more difficult.

From 2007 to 2009, there was widespread concern about the risk of an economic depression. However, the economy took a turn for the better. Sustained growth over the years has allayed economists' fears of a double-dip recession.

The last double-dip recession in the United States happened in the early 1980s, when the economy fell into recession. From January to July 1980, the economy shrank at an 8 percent annual rate from April to June of that year. A quick period of growth followed, and in the first three months of 1981, the economy grew at an annual rate of a little over 8 percent. After the Federal Reserve hiked up interest rates to combat inflation, the economy fell back into recession from July 1981 to November 1982. The economy then entered a strong growth period for the remainder of the 1980s.

The Great Depression Double-Dip Recession

Under another definition of a double-dip recession, unemployment rises to extremely high levels and takes a long time to fall. This long period of high unemployment is the trigger for another recession before unemployment returns to normal levels.

The Great Depression had a double-dip in the market. Book-ending the start and end dates of the Great Depression, two recessions happened, from 1929 to 1933 and 1937 to 1938. Unemployment remained at a stubbornly high rate of 12.2 percent during these years.

The first of these recessions was caused by tight money, and the second was caused by President Franklin Delano Roosevelt, trying to balance the budget. In addition to tight money, there were other causes of the depression, including war reparations owed by Germany and war debts owed by England and France. These massive unpayable debts combined with a mispriced return to a poorly constructed gold standard restricted global credit and trade and caused deflationary pressures.