What is double dip recession?

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oi-Shoaib MD

By Shoaib Md

Published: Monday, August 8, 2011, 12:54 [IST]

Economist use the term recession to describe the contraction phase of business cycle, with two or more consecutive quarters of negative GDP growth. During recession majority of the macroeconomic indicators show a slowdown or contraction with varying pace though in the same direction.

Production for a country is measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits, and inflation. And during recession all of these production indicators fall, meanwhile bankruptcies and the unemployment rate rise.

In a "V" shape recession the economy suffers a sharp but a brief period of economic decline with a clearly defined trough, followed by a strong recovery. This was something we all saw during 2008-09 period.

Economists use the term 'Double dip' recession or a "W" shape recession, when the economy enters a recession, witness a short recovery and then the economy enters a second recession and then recovers from it over a short period again.

The early 1980s recession in the United States is cited as an example of a W-shaped recession. The economy fell into recession from January 1980 to July 1980, shrinking at an 8 percent annual rate from April to June of 1980. Then the economy entered a quick period of growth, and in the first three months of 1981 grew at an 8.4 percent annual rate. The economy dipped back into recession (hence, the "double dip") from July 1981 to November 1982. The economy then entered a period of mostly robust growth for the rest of the decade. (Click here to see picture)

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