When is an Economic Recovery Not a Recovery?
What do we mean when we say the economy is recovering from a recession? Do we mean it has started growing again, or do we mean it is returning to its pre-recession trend? Brief research suggests there is no standard definition, but Wikipedia is clear it is the latter:
“An economic recovery is the phase of the business cycle following a recession, during which an economy regains and exceeds peak employment and output levels achieved prior to downturn. A recovery period is typically characterized by abnormally high levels of growth in real gross domestic product, employment, corporate profits, and other indicators.”
The second sentence is crucial here. All economies grow on average: they have a positive trend growth rate. An economic downturn (or worse still a recession) involves the economy dipping below trend (or in a recession not growing at all). Typically whenever that has happened in the past, most economies make up for the growth they lost in the downturn, by growing more rapidly than trend once the downturn is over. This had certainly been true for the UK. We expect economies to grow over time because of technical progress, so it seems almost obvious that a recovery must involve above average growth until we return to something like an underlying trend.
Imagine a 5,000 metres race. *Suppose an athlete trips and stumbles, and is left behind by the main pack. If 5 minutes later I said the athlete was recovering, would you think this meant that they were getting back to their previous pace but still well behind the main group, or that they were getting back in touch with the main pack? I suspect you would think it meant the latter, and you would call a complete recovery when they were back within the main group. If you think about the main group as the underlying trend path of the economy, then a recovery in growth means getting back towards this trend path.
For this reason I would define a recovery from recession as above trend growth, and I think most macroeconomists would do the same. Here is recent quarterly growth in UK GDP per head.