Yesterday Dr Willem Boshoff of Stellenbosch University spoke at our seminar series. He presented interesting work on the recovery phases of the South African business cycle.His key argument is that output losses do not end when a recession ends and we need to know more about the recovery phase.
The study of recoveries firstly requires some unpacking of the business cycle chronology: dating the top and bottom of the cycle as well as the recovery and he discussed different ways of doing this. Often the focus of the analysis that you would find in the media is on the time it takes for the level of output to return to its previous peak, but Dr Boshoff argues that the growth cycle is also important – recessions are not only about the decline in the level of output, but also about the deceleration in the growth rate relative to the trend. In other words, does the economy bounce back from recession, or are the recoveries slow, at lower growth rates? His analysis shows output losses of 14% during the 2008 recession, with another 50% of potential output lost in the slow recovery since then. This has important implications for when counter-cyclical policy should end.