Understanding Double-Dip Recession

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Recession is always scary, as it can mean a lot of things to different people. To some, it means loss of jobs, while to many others it means shutting down of businesses, or reduction in profits.

If Recession wasn’t enough, now comes in a new concept of Double-Dip Recession, which is making people worry even more. Here’s an attempt to look at it, and understand why it is making people tensed.

What is Double Dip Recession?

There are different letters such as U, V, L and W, used to describe the different kinds of recession that may hit an economy. A V shaped recession is considered to be one, in which when the output falls, it recovers very quickly. In a U shaped recession, the recuperation or the recovery period is slower than V shaped recession, and thus, there is a kind of a lag. L shape is the worst, as the output remains flat after falling and does not recover at all. The W shaped one is considered to be Double-Dip recession, in which when the output falls and recovers, it falls again.

How do they look at it in the West?

Usually in the west, the financial press considers output declines in two quarters as Recession. However, the Cycle Dating Committee of NBER (National Bureau of Economic Research) looks at it slightly differently. In its case, the output decline in two different periods is either considered as two separate recession periods, or as part of the same recession. So in a way, it does not really have the concept of Double-Dip recession.

Experts say that recession is basically to be looked at as a decline in output, and now slowdown in the growth, as they are both separate things.

How does it affect people?

In a normal kind of recession, when an economy is booming, there is a growth of demand, which can also lead to rise in prices. In such a case, the central bank steps in to raise interest rates, and the demand and the output both come down. Then the central bank moves towards cutting the rate, because of which the outputs and the demands rise again.

However, considering that a major recession hit the world in 2008, the recovery has been very slow. This is not exactly what we term as ‘normal’ recession. And if a double-dip recession hits at this point in time on either US or Europe, it will be vey difficult for them to come out of it, as the central banks have run out of ways to step in and manage the situation.

Eventually, it might lead to a state where the financial status of some countries such as Greece (which has been on the downward slope continuously since 2008) would turn out to be really bad, and the chances of recovery would be very low. It would then start affecting the global economy trends, and would affect demand-supply, output, inter-country business opportunities, and many other economical patterns and systems quite adversely. No wonder, people involved in global businesses are extremely worried.

 

Thomas Green is the author of this post. He is a financial advisor and recently visited the home page of a loan site which guided him for some quick cash in minutes.

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