Following the economic news lately, you might have noticed some ominous signs on the horizon. It’s no secret that we’ve been discussing the possibility of a recession since a long time. Before we dive into the details, let’s clarify what a recession actually is. It’s typically defined as two consecutive quarters of declining GDP, and economists often throw factors like the unemployment rate into the mix for a comprehensive assessment.
In the first and second quarters of 2022, we did experience two consecutive quarters of declining GDP, albeit a mild dip. Strangely, the authoritative National Bureau of Economic Research didn’t officially declare a recession. As of now, there’s still no official recession on the books, but the warning signs are becoming increasingly difficult to ignore.
Now, it’s essential to differentiate between identifying a recession in the making and pinpointing the exact timing of its arrival. Predicting the precise start of a recession is one of the trickiest tasks in economics.
One of the most telling signs of an impending recession is when mainstream or middle-of-the-road economists start sounding the alarm. There are those who predict recessions persistently and they do eventually get it right, because recessions are an unfortunate part of economic cycles. But when someone like Mohamed El-Erian, known for expecting strong economic growth and being an optimist even when faced with adverse data, starts talking about a recession, it’s time to take notice. His warnings carry weight, and they suggest that a recession is either already upon us or knocking on the door.
Sven Franssen