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What’s a Double Dip recession? Your 60-second guide

The services sector is slowing down. Is a second recession on the way? And what does that mean?

This graph shows the level of economic growth in the US between 1978 and 1983. There were two separate recessions - or a 'double dip'.
This graph shows the level of economic growth in the US between 1978 and 1983. There were two separate recessions - or a 'double dip'.
Image: Creative Commons

WITH NEW DATA showing that the UK service industry has seen another slowdown in trade, and the American economy taking longer than everyone thought to get back on its feet, fears over a so-called ‘double dip’ recession are gathering pace.

But what exactly is that – and what does it mean?

Well, let’s explain a technicality first. A ‘double dip’ isn’t one recession: it’s two separate ones, with the second following shortly after the first has ended.

Let’s go over the ground rules, then. A recession is officially defined as when an economy experiences two consecutive quarters of ‘negative economic growth’ – when the total output of an economy shrinks for two three-month periods in a row.

A recession ends when an economy returns to growth, however modest the growth might be. Therefore, though you might not think it, Ireland is officially out of recession, and has been since the end of the first quarter of this year, because the Gross Domestic Product grew by 2.7% then.

(However, it’s worth noting that the Gross National Product – the measure of how well native businesses are doing, as opposed to those realistically from abroad, is still negative.)

A W-shaped recession

A ‘double dip’ derives its name from how two quick recessions look on a graph – as pictured, it’s also called a W-shaped recession. The image shown is the measure of economic growth in the United States between 1978 and 1983. The economy recovered from a recession that peaked in the summer of 1980 to return to positive growth by the end of the year, but by Christmas of 1981 another deep recession had made its way in.

So what are the effects of a ‘double dip’? Well, it’s broadly similar to the effects of one recession, but amplified a bit. If an economy was doing well in advance of a recession (like Ireland for most of the 15 years up to 2008), then some job losses and a fall in economic output can be viewed as just undoing some of the good work of previous years.

In a secondary recession, however, we’re scraping the barrel a bit more. Rather than going back to the state of the economy before the good times began, we might go even lower. It doesn’t take much of an imagination to guess how that might go in terms of job layoffs, fall in spending money, and the withdrawl of foreign investment.

So, in essence, let’s just hope that it doesn’t come to that. Thankfully, it appears that the European Central Bank don’t see much danger of a double dip in a European context.

(Yes, this probably did take longer than 60 seconds to read. Sorry. This stuff is complicated, you know?)

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About the author:

Gavan Reilly

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