I’m suspicious about Dr Cullen’s claim that we are heading for a “technical recession“. I agree that we are heading towards a period of sub-trend growth. We might be heading towards a period where we have a consumption based recession (slow growth, consumption stalls, unemployment rises), which would be a big deal.
However, what Dr Cullen is saying is that we will have a technical recession. Now usually when someone puts the work technical infront of something they are trying to demean it. The saying “well that might be technically true” is usually a starting point for saying why something doesn’t matter.
However, in the case of a recession, the term technical recession is actually a big deal as it specifically implies that we will have two quarters of negative (seasonally adjusted) growth. Many people are happy to pull out the word recession (or lite-recession) when we have two quarters of small growth (say below an annualised rate of 1%) so as you can tell a technical recession is worse.
Most analysts have picked a lite-recession during the second half of 2008, however only one forecaster had the balls to pick a full blown ‘technical recession’ – BNZ. However, even they only just have a technical recession by December 2008, a small upward surprise (even 0.1%) would take that away.
As a result, Dr Cullen is either preparing us for the worst, his words were misrepresented by the media, or he used the term inappropriately. I’m going for some wild mix of all three.