Recession or Deceleration

A distinction between deceleration and recession must be made. Experts state that a recession occurs when the Gross National Product (GNP) decreases during, at least, two consecutive trimesters. The term "deceleration", on the other hand, is not precise. Economic acceleration would be the rate of change of economic growth. That is, the growth rate of the velocity at which the GNP increases. With a positive acceleration, the growth rate of the GNP increases; with a negative acceleration or deceleration, the growth rate of the GNP decreases.

The Bank of Guatemala, by means of its Monthly Indicator of Economic Activity, has reported that the growth rate for the first trimester of 1996 was lower than the one for the prior year. This fact suggests that the actual period is characterized by a deceleration in the economic growth rate.

Because not all economic activities are equally affected during these periods, it is important to measure the extent to which recession or expansion affect the various economic sectors. The mentioned index is not the result of a complicated forecast, of dubious statistical significance; it is rather a simple indicator that can be understood by anyone. The index measures the percentage of economic activities and variables that expand from one period to the next.

The index does not quantify, with a high degree of accuracy, the rate at which economic activity is growing. It measures the tendencies of economic activity. Data indicate that, during the first trimesters of 1995, the economy tended to accelerate, and then the index shows that the economy continues growing, even though the growth rate is lower than that of prior months. The current year follows this same tendency; during the first two trimesters, the index fluctuated around 50%, and data point to a deceleration in economic growth, although the exact degree of the decrease is not known.

This analysis could be greatly enriched with the evidence held by those who sustain that there is a recession. It would be critical to establish if economic activity is decreasing to a greater degree, if the worse is yet to come, or if the worst part of the recession is over.

For now, the data analyzed here is not conclusive in affirming that the economy is now at this stage. However, this is not necessarily good for, according to the economic cycle described in textbooks, after deceleration comes the strongest blow of the recession. Anyway, as stated at the beginning of this article, instead of over-diagnosing the afflicted, we should give him the medicine he needs and cure his ailments. If we continue to diagnose and observe the patient, we will not accomplish anything, except his death.