There is no doubt that uncertainty and pessimism are dominating predictions for both global and national economies at the start of the year.
The question is whether this uncertainty will develop into full-blown recession
The official definition of a recession in Investopedia is “a significant decline in economic activity that goes on for more than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP).”
The whole definition is based on the definition of GDP and what is continuous economic growth. While implied, there is little about living standards, getting people out of poverty or growth of employment.
By many measures there are worrying signs of a slowdown. However as noted by the IMF (International Monetary Fund) at this month’s Davos meeting of the WEF (World Economic Forum) a recession is by no means certain.
The IMF predicted global growth of 3.5% in 2019. In October, it forecast 3.7% and for the UK, growth of about 1.5% this year and next, but it also says there is substantial uncertainty around the figures, given uncertainty over the Brexit outcome and ongoing trade wars particularly between China and the USA.
Are there pointers towards recession in the UK?
In some sectors, notably retail, house price growth and motor manufacturing, the trend has been inexorably downwards. Consumers, too, have been reining in both their borrowing and their spending.
However, while stresses in the economy may be building, they are not at a critical point yet. In manufacturing as a whole, the IHS Markit/ CIPS UK Manufacturing PMI increased to 54.2 in December 2018 from an upwardly revised 53.6 in November.
Employment, another critical recession indicator, is also at an all-time high. But with businesses already announcing job cuts or moves to Europe ii there is no Brexit deal, and an estimated 70,000 retail jobs lost in the past year it will be interesting to see how the employment figures hold up over the coming year.
How will a switch to sustainability impact on traditional measures for recession?
The urgency of tackling climate change has never been greater, nor the time shorter, and there is increasing awareness that economic models based on perpetual growth, especially in those countries reliant on consumer spending, are going to have to be replaced by models that embrace sustainability.
It is possible, therefore, that the idea of recession as defined at the top of this article, will carry significantly less weight in any sustainability model.
The question is whether we need to think more radically to find a new and more appropriate definition of an economy’s health and success rather than using some theoretical construct if we do move to improve the future for everyone.