Talk of a an imminent double depression in the US have been making headlines after Standard & Poor’s downgraded US’ credit ratings from AAA to AA on 7 August 2011. While a speculation on the possibility is on, the signs say the US could very well be on the brink of its second recession in three years.
The newly increased debt limit in the US would mean further rise in interest rates and a slowdown in investment that will further dampen growth. The UK too is in the grips of the fear of a double dip.
So, what is a double dip recession?
When an economy emerges from recession and economic growth (GDP) begins an upward trek but soon falls into a recessionary phase again, it's going through a double depression. It is also called the W-shaped recession, as the growth graph of economies going through a double dip looks like the alphabet W.
Instances of double dip recessions:
• The United States’ economy entered a recession in 1929, which continued until 1933. Recovery continued until 1937, at which point a second recession began.
• Since World War II, there was a double-dip recession during the 1980-1982 period. The economy was in a recession in the second and third quarters of 1980. Then recovery began, but the economy lapsed into a downswing into the fourth quarter of 1981 and the first quarter of 1982.
While some argue that double dip recessions are rare, Economist Andrew Lilico in his paper, says they are quite common. He says it's not unusual for a period of post-recession growth to be followed by a quarter of contraction.
Updated Date: Aug 09, 2011 17:30:42 IST