Definition

A period of general economic decline: typically defined as a decline in GDP for two or more consecutive quarters. A recession is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. A recession is generally considered less severe than a depression, and if a recession continues long enough it is often then classified as a depression. There is no one obvious cause of a recession, although overall blame generally falls on the federal leadership, often either the President himself, the head of the Federal Reserve, or the entire administration.

In economics, a recession is a business cycle contraction, a general

slowdown in economic activity over a period of time for more than two consecutive quarters. During recessions, many macroeconomic indicators vary in a similar way. Production, as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall during recessions; while bankruptcies and the unemployment rate rise.

The NATIONAL BUREAU OF ECONOMIC RESEARCH (NBER) defines an economic recession as: "a significant decline in [the] economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales." Almost universally, academics, economists, policy makers, and businesses defer to the determination by the NBER for the precise dating of a recession's onset and end.

The standard text book definition of a recession is: Negative Economic Growth for two consecutive quarters". This means there must be a fall in real output for a period of 6 months.

However, not all economists are happy with this definition. Why?
1. Population Growth: If the population was increasing by 1% a year. Real GDP growth of 0.5% would mean Real GDP per Capita was falling. This is an important factor for countries like the US which have growing populations. 2. Statistics can be inaccurate. Often GDP statistics are inaccurate and need to be revised down. Therefore, growth of 0.3% could actually mean growth is falling 0.2%. However, figures can be rounded up as well as down. 3. Growth Below Trend Rate. If capacity grows by an average of 2% a year, then economic growth of 0.8% a year, would mean a rise in spare capacity and therefore, unemployment is likely to rise. Therefore, some economists feel we should call a recession, if spare capacity is rising. However, the problem with this is that it means economic growth of 1.0% could be classed as a recession, which creates confusion. Some economists refer to a 'growth recession'. Low growth compatible with features of recession. 4. Unemployment. Arguably, a distinguishing feature of a recession is rising unemployment. If unemployment rises significantly, then this signifies the economy is in recession. It would seem churlish to say the economy was not in recession, if unemployment has risen by 0.5 million but, growth is just about positive. However, how much unemployment would have to increase by? Also, unemployment could be caused by supply side factors, rather than demand side factors. 5. Survey. You could ask a survey of economists / people, whether they think the economy is in recession. But, this is very subjective. At the moment, 53% of economists think the US in in recession, but, 47% don't - how helpful is this?

What Does it mean to be in Recession???????

There is much talk about the US economy entering into a recession. I notice on my statistics that quite a few people are searching. "What does it mean to enter a recession?" A recession means a period of negative economic growth. This means there is a fall in National Output. The official definition of a recession is when there is negative economic growth for two consecutive quarters. (i.e. for 6 months) However, in practise people may talk about recession, even when the economy is growing very slowly. In economics we sometimes refer to this as a growth recession. This is because when economic growth is very low it means that we usually see many of the common features of recession. In a recession the following usually occurs. 1. Lower Incomes 2. Rising Unemployment 3. Lower inflation 4. Higher Government Borrowing 5. Fall in sales of houses. 6. Fall in Business and consumer confidence 7. More spare capacity in the economy. The problem is that: 1. The Housing Market is in decline. In many cities house prices are falling. 2. The Stock market is falling, Partly due to the sub prime mortgage lending problems. 3. There are fundamental imbalances in the US economy low savings ratio, high debt levels,

trade deficit and government fiscal deficit.

Weakness of the dollar (related to trade deficit)

People are concerned that the combination of falling house prices, falling share prices and rising interest rates are likely to cause a recession. If people fear a recession is about to occur, this fear can often make it happen. If you feel there may be a recession in the future then you will cut back on spending and this can cause a further fall in AD.

Causes of Recession
A recession occurs when there is a fall in economic growth for two consecutive quarters. However if growth is very low there will be increased spare capacity and increased unemployment; people will feel there is a recession. This is sometimes known as a growth recession. If there is a fall in AD then according to Keynesian analysis there will be a fall in Real GDP. The effect on Real GDP depends upon the slope of the AS curve if the economy is close to full capacity lower AD would only cause a small fall in Real GDP.

AD is composed of C+I+G+X-M, therefore a fall in any of these components could cause a recession. For example, if the MPC increased interest rates sharply this would cause the cost of borrowing to increase and make saving more attractive. This would have the effect of reducing consumer spending. AD could also fall due to deflationary fiscal policy, for example higher taxes and lower government spending would also cause a fall in AD.

If there was a fall in AD the multiplier effect may magnify the initial fall in A. For example if there was a fall in output, workers would be made unemployed. These workers would then spend less causing a secondary fall in AD. This would make the fall in Real GDP greater. A key feature in determining the rate of economic growth is the level of consumer and business confidence. If confidence was high then higher interest rates may not reduce demand. However if confidence is low and people fear they may be made unemployed, then they will start spending less, causing AD to fall (or increase at a slower rate). Therefore this shows that expectations are very important and it is possible for people to talk themselves into a recession An important feature of the UK economy is international trade, therefore the UK would be affected by a global recession. For example a recession in the EU would cause a fall in demand for UK exports reducing our AD (EU accounts for 60% of our trade therefore is important). Also a recession in other countries would effect economic confidence if people see the US in a recession they are worried and will spend less. However a global recession may not cause a recession in the UK if domestic demand remains high. Classical Economists believe that any fall in Real GDP will be temporary and will end when labour markets adjust to the new price level. Classical economists argue that if there is a fall in AD then in the short term there will be a fall in Real GDP. However with a lower price level wages will fall therefore the SRAS will shift to the right and the economy will return to the original level at Yf and the recession will be over. However in the great depression of 1930s Keynes was very critical of this classical view he said that the long period of negative growth showed that markets do not automatically clear he argued that this was for various reasons. 1. Wages are sticky downwards, Firms should cut wages to reflect lower prices but in reality workers are very resistant to cuts in nominal wages 2. If wages were cut in response to unemployment workers would have less spending power therefore AD would continue to fall. 3. In a recession people have low confidence and therefore spend less. Keynes said this was the Paradox of Thrift

Dubai economy seen contracting in 2010

The Dubai economy is forecast to remain in recession in 2010, the second year in a row that the emirate has experienced negative growth, according to research released on Monday by a major Dubai-based investment bank. The UAE Vision 2010 report, which was published by Shuaa Capital, said the Dubai economy would contract by 0.4 percent year-on-year this year, following on from a five percent yearly contraction last year. This was mainly due to declines in residential sale prices and the emirates population, which have fallen by around 60 percent and nine percent respectively. However, Shuaa expected the UAE economy as a whole to emerge from recession this year. GDP is forecast to grow 2.5 percent, a turnaround from the 3.5 percent year-on-year contraction it recorded in 2009. A recovery in oil prices will also see Abu Dhabi emerge from recession this year and register GDP growth of 1.4 percent, compared to a contraction of 2.7 percent in 2009. The capital will benefit from a recovery in oil prices and output this year, as well as strong growth in the non-hydrocarbon sector, which will be supported by government investment and spending," said the reports author, Mahdi Mattar, head of research and chief economist at SHUAA Capital. "Meanwhile, we anticipate Dubais economy to contract 0.4 percent year-on-year in 2010, as the key construction and real estate sector continues to be a drag on growth in the emirate. The report said it expected the UAE capital markets to grow by up to 25 percent this year. A resolution of the Dubai World debt story will be the main catalyst for this growth, believes Mattar. In six months we will have a resolution and [it] will not be a hostile resolution. The main assumption behind this statement is because the Dubai government is doing the negotiation and not Dubai World the commercial entity. The Dubai government is taking a broader picture when doing the negotiations and is looking at the effect on the economic growth in Dubai and the effect on the reputation of Dubai with international capital markets and local banks, he adds.

Mattar said he believed the resolution will not be as hostile as the market is currently predicting and once this uncertainty is removed the capital markets will recover. In the real estate sector, Shuaa expected Dubai to see another 10 percent drop in residential sale prices, mainly due to a drop in demand as a result of the continued decline in the expatriate population. Shuaa estimated that the emirates population shrank by nine percent in 2009 and will decline by another 3.6 percent this year. An additional 26,650 apartments and villas are expected to enter the Dubai market in 2010, which will put more pressure on the oversupply issues that already exist. In Abu Dhabi, Shuaa expected the residential shortage to continue, despite the addition of 23,000 extra units expected to enter the market over the next two years. The capital was also unlikely to see the steep price and population drops experienced in Dubai, the report said. In the banking sector, customer deposits are expected to rise eight percent, resulting in an additional net increase in liquidity of AED84bn. Lending is not expected to match deposits and will likely to only see six percent growth. Banks are expected to see a recovery in earnings of up to 10 percent. However, this is following a 15 percent decline seen throughout 2009. Non-performing loans (NPL) are expected to account for eight percent of loans in 2010, although Mattar believes that this year the focus of the NPLs will move away from consumer loans and mortgages and more towards outstanding corporate debts.

Dubai recession is over and now we look for change

Dubai: The worst is over and Dubai is looking for new opportunities for growth, said His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai. The recession is a global phenomenon and I do not think that we in Dubai fear it; instead we consider it a challenge, Shaikh Mohammad said in an interview to CNN that will be aired tomorrow. Life will be boring if there is no challenge. Dubai and Abu Dhabi and the rest of the emirates are fine. We know its a recession, we know its a challenge and were dealing with it, Shaikh Mohammad said, according to a transcript of the interview received yesterday by Gulf News. Dubai World, the ports and logistics operator, and one of the emirates largest conglomerates, is in the process of finalising a debt restructuring package worth $23.5 billion (Dh 86.31 billion)

with its lenders. Analysts believe that Dubai and the UAE will move past this episode and return to overall economic growth this year. The companies are restructuring because its a new world. You have to stop and restructure, Shaikh Mohammad said. While property rents have already begun a tentative recovery in some pockets of Dubai, the pace of growth is being viewed as a more realistic one. Banks are still wary of funding new projects; this may be the one constraint that still needs to be overcome, an economist told Gulf News. The International Monetary Fund has said the UAE, after a small contraction in 2009, will likely post positive growth in gross domestic product (GDP) this year. The National Bureau of Statistics expects GDP to touch 3.2 per cent. Analysts also point to continuing investment in infrastructure in Dubai as an indicator of future growth. Amid the worst of the global uncertainty, Dubai completed the 828-metre Burj Khalifa, the worlds tallest man-made structure. The drive is there. So are the resources, the economist said.