What’s in the news?

• The UK slipped into a technical recession in the second half of 2023.
• Gross domestic product fell 0.3% in the fourth quarter. It followed an unrevised 0.1% decline in the previous three months.
• To better understand the term “technical recession”, one must distinguish it from two other phrases — a recession and a recessionary phase of an economy.

What is a recessionary phase?

• When the overall output of goods and services — typically measured by the GDP — increases from one quarter (or month) to another, the economy is said to be in an expansionary phase. And when the GDP contracts from one quarter to another, the economy is said to be in a recessionary phase.
• Together, these two phases create what is called a “business cycle” in any economy. A full business cycle could last anywhere between one year and a decade.

How is a recession different?

• When a recessionary phase sustains for long enough, it is called a recession. In other words, when the GDP contracts for a long enough period, the economy is said to be in a recession.
• There is, however, no universally accepted definition of a recession — as in, for how long should the GDP contract before an economy is said to be in a recession. But most economists agree with the definition that the National Bureau of Economic Research (NBER) in the United States uses. 
• According to NBER, “During a recession, a significant decline in economic activity spreads across the economy and can last from a few months to more than a year”.
• NBER typically looks at various variables — employment, consumption etc — apart from GDP growth to arrive at a decision. It also looks at the “depth, diffusion, and duration” of decline in economic activity to determine whether an economy is in a recession or not.

What is a technical recession?

• A technical recession is a term used to describe two consecutive quarters of decline in output. In the case of a nation’s economy, the term usually refers to back-to-back contractions in real GDP. 
• The most significant difference between a ‘technical recession’ and a ‘recession’ is that while the former term is mainly used to capture the trend in GDP, the latter expression encompasses an appreciably more broad-based decline in economic activity that covers several economic variables including employment, household and corporate incomes and sales at businesses. 
• Another key feature of a technical recession is that it is most often caused by a one-off event and is generally shorter in duration.