Realist, not conformist analysis of the latest financial, business and political news

Less Than 3% Global GDP Growth Is A Recession

Yes, yes, we normally think of a recession as being negative growth. More formally, two quarters or more of negative economic growth. The pile of everything being produced by everyone goes down.

However, while this is true it’s not entirely useful when we consider the global economy. There a reasonable rule of thumb is that less than 3% growth is that recession:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]It sounds a bit odd to be describing near 3% global GDP growth as being recession levels – most rich countries would kill for that sort of growth rate maintained over the years. Do note that we’re talking of real growth here, this is after inflation is deducted. Still, a useful rule of thumb is that for global growth something less than 3% is what we should be describing as a recession.

This isn’t an official declaration, rather a general rule of thumb used by the World Bank, OECD and IMF. Global growth of less than 3% is recessionary. The reason being that growth in poor countries should be – note should – a lot easier than that in rich. Rich places are already at the technological frontier. To get more growth people have to go work out how to do it.[/perfectpullquote] [perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Poor countries by contrast aren’t, by definition, at that technological frontier. They’re not doing everything in the modern and efficient manner – that’s why they’re poor. So, their growth is a lot easier. Go copy – quite literally – what the rich countries are doing and there you have it, growth. Poor countries should be growing faster than rich and that’s what means that global growth should be up above 3% whatever else is happening. If it isn’t then we can say that we’re in something akin to a recession – even though the actual definition, falling economic output, isn’t being met.[/perfectpullquote]

Not hugely important of course, just one of those little things that makes up the world’s rich tapestry.

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Tristram Fuller
Tristram Fuller
5 years ago

I understand what is being said but how many countries are actually experiencing 3% growth or better ?

5 years ago

India, China, Bangladesh, Pakistan, Botswana……..

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