By Clint Chan Tack Thursday, August 6 2009

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Finance Minister Karen Nunez-Tesheira....

FINANCE MINISTER Karen Nunez-Tesheira yesterday denied the country is in a recession.

In its summary economic indicators report of June 2009, the Central Bank said the economy contracted by 3.3 percent in the first quarter of 2009 compared with growth of 2.4 percent in the first quarter of 2008. The report also said the economy contracted by 1.1 percent in the fourth quarter of 2008.

However, Nunez-Tesheira yesterday declared: “There are indicators that there is economic slowdown. Recession? I don’t think so.”

Wikipedia Encyclopedia defines a recession as a general slowdown in economic activity over a sustained period of time or a business cycle contraction. During recessions, many macroeconomic indicators vary in a similar way.

Production as measured by the Gross Domestic Product, employment, investment spending, capacity utilisation, household incomes and business profits all fall during recessions. However for a recession to occur, the real economy must decline. Nunez-Tesheira said while two quarters of negative growth have been recorded, other factors must be considered before it can be said that the country is in a recession.

“Clearly, one of the components of how you define a recession to some people is two quarters of negative growth, some might say three quarters, but it’s interesting in looking and doing a little bit of research,” she stated. The minister said high unemployment rates as well as the real estate market must be also be used as determinants of the term used to describe the country’s economic situation.

The Central Bank said the unemployment rate rose to five percent in the quarter ending March 2009 from 3.9 percent in the quarter ending December 2008.

“As you know the unemployment rate did go down to 3.9 percent or thereabout last year but five percent by any standard is full employment and so when countries talk about a recession, a key component...is your high unemployment rate,” Nunez-Tesheira said.

Employment in the construction, manufacturing and services sectors fell by 0.9 percent, 3.3 percent and 2.5 percent respectively from March 2008 to March 2009. However, employment in the agricultural sector increased by 30.7 percent in the quarter ending March 2009 to reach 21,300.

The minister added that while consumer credit fell from May 2008 to May 2009 by 0.8 percent, business credit and real estate mortgage lending grew by 6.5 and 13.6 percent respectively. Nunez-Tesheira recalled that in 2001, the United States experienced two consecutive quarters with no negative growth but determined they were in a recession because of high unemployment.

Economist Mary King said while the information from the Central Bank suggests the country is in a recession, that is not the issue.

“It does not matter what you call it. We have to get out of the model of development that we are in,” she said. King said greater efforts must be placed on transforming the economy into one which is less dependent on oil and natural gas, given the volatility of the prices of these commodities on the global market.

King said if Government plans to introduce an economic stimulus in the 2010 Budget, it must be in new areas of the economy that will create “centres of excellence” such as research and development that will strengthen the economy.

Asked if recent declines in inflation to single digits would have been possible if the country was in a recession, King said this happened because of declines in factors which influenced the prices of commodities such as food. She added that given the continuing liquidity challenges in the financial system, a close eye must be kept on any inflationary pressures affecting the economy.