What is a double-dip recession?
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Britain's economy on Wednesday fell back into a double-dip recession, sinking again after the 2009 slump, after official figures showed that it unexpectedly contracted during the first three months of the year.
But what is a double-dip recession?
1. A double-dip recession occurs when an economy recovering from negative rate of economic growth (gross domestic product, or GDP) slips back quickly into negative territory. This period may last three to four years, depending on the pace of growth and the size of the economy.
2. A double-dip economy resembles a ‘W’ when the country’s GDP growth is plotted into a chart, and is therefore also called a W-shaped recession.
3. The recession period in the US in the early 1980s is a prime example. The US economy slowed from January to July 1980, shrinking by an annual 8 per cent, after which it recovered to grow at 8.4 per cent. Then, in July 1981, the economy slipped back into the negative territory, and the lull lasted till November the following year.
4. Following the financial crisis after Lehman Brothers’ collapse, the Reserve Bank of India’s monetary policies ring-fenced India from the recession in the West. However, GDP growth slowed to 6.7% in 2008-09 from close to 9 per cent, and showed signs of recovery only in the second quarter of 2009, when it grew 7.9%, indicating that the worst was possibly behind it.
5. While the ‘R’ word was bandied about at the height of the financial crisis, India did not really come close to it. On the contrary, the RBI’s loose credit policy at the time stoked inflation over the past two years. Growth has slowed in the past two fiscals, largely because of a tight monetary policy to rein in inflation, as well because of global pressures such as the Eurozone crisis. An economy must register two consecutive quarters of negative growth to officially enter a recession. To be sure, India’s growth has been hit even as the fiscal deficit is rising, leaving the government with little fiscal firepower for another stimulus.
