Unclear definition on what constitutes a recession

Many people often pose the question of whether Australia can weather this market downturn and avoid going into recession, however given the mixed interpretations economists signal, it is anyone's guess as to what really constitutes a recession.

The most typical measure is based on two consecutive quarters of “negative growth” or a significant contraction in the national account figures. It is questionable as to whether this alone is a sound measure, given that historically these indicators have resulted in false readings.

ANZ chief economist Saul Eslake suggests that a better gauge would be based on whether the unemployment rate increases by 1.5 per cent within a 12 month period. He further goes on to say “On this measure, the Government's forecast that the jobless rate will rise from 5.5 per cent in the middle of this year to 7 per cent by mid 2010 is a prediction of recession”.

Other views signalling whether a recession is nearing include recording negative economic growth figures or when national income declines by more than 10 per cent.

Source: Sydney Morning Herald