With the decline, for the second consecutive quarter, in economic production in United Statea situation that was technically confirmed a few weeks ago by the authorities of that country, fears are growing that this country will enter the RecessionAnd it infects many other countries, including Colombia. This has become the buzzword, but what is ‘stagnation’?
In the first quarter GDP (Gross domestic product) of that country, the sum of all that is produced within the country) is down about 0.4 percent compared to what was produced a quarter of a year ago. In the second quarter, there was a 0.2 percent decrease compared to the first quarter’s GDP.
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On Monday, IMF Managing Director Kristalina Georgieva warned against this The risk of a global recession has risen And that the world has now entered a time of “fragility and volatility”.
“The economy does not always go at the same pace. Sometimes it goes fast, sometimes it goes, sometimes it goes slow…slower…stopping or regressing. Depending on the speed of the march, one hears of ‘boom, crisis, recovery or slowdown’. These are the magic words for the business cycle.”
(Also read: Why the US is causing an economic slowdown on itself)
This is explained in the book Economics for All, by the economic editor of EL TIEMPO, Mauricio Galindo, published by Intermedio Editores.
With these names – as mentioned in the book – we are talking about the different stages of fluctuation in economic activity in which the production of most industries grows or decreases simultaneously. And within these words there are some that are heard with fear: “crisis,” “stagnation,” “stagnation,” “stagnation.”
Economy, to the sound of the accordion
Like an accordion that stretches and contracts, the economic cycle is the succession of periods of growth and general decline in economic production, so that there are two main phases: expansion and contraction, which occur when a country’s total production (GDP), increases or decreases.
While GDP is the value of the total goods and services produced within a country during a period, say a year, the so-called potential gross domestic product is the maximum output a country can achieve if all the natural resources are used. Technology, equipment, facilities, and personnel available.
When the total of goods and services produced and provided within a country increases, and the total amount that the country can produce increases or the potential GDP increases, there is an expansion of the economy. Deflation occurs when total production falls.
And – added in the text – the contraction and expansion phases do not always have the same intensity. There can be very mild and strong contractions that last for many years, and the same can happen with the expansion phases.
Recession causes depression
The use of terms such as “stagnation”, “depression” or “crisis” seems random, although there are sometimes nuances in the use of these words. It is said, for example, that depression is a severe recession. But over time, the words ‘crisis’, ‘depression’ or ‘stagnation’ generate the same panic among those who hear them.
“The first time there was talk of recession – says Galindo – was during the ‘Great Depression’ of the 1930s. During that time, US President Herbert Hoover didn’t want to talk about the crisis, because it seemed so harsh, and politicians tended to think of That things would get better if they changed their names. That’s how Hoover started talking about depression rather than crisis.”
But it turns out that the depression of the 1930s was not just a depression, but the “Great Depression.” Within five years, US production was down 27 percent. “It was then, following the logic of making things better by changing their names, that the term slack was coined.”
Recession is the word most used to refer to the downturn phase of the business cycle. To figure out when a recession occurs, there is a kind of popular consensus that it happens when GDP falls for two or more consecutive quarters. However, this definition is rather a convention.
In the United States, when a publicly accepted recession or expansion begins and when it ends is announced by the National Bureau of Economic Research (NBER), the benchmark is not the benchmark for the two consecutive quarters of contraction. The NBER takes into account, among many other things, whether employment, that is, the number of people employed, is declining for a long time; If industrial production falls in the same period as well as personal income and business sales.