How Are Recessions Defined Outside of the US?

In the Euro Area, the Euro Area Business Cycle Network (EABCN), part of the European Central Bank’s research network, founded the Euro Area Business Cycle Dating Committee (EABCDC) in 2003 with the sole purpose of determining the chronology of the Euro Area’s business cycle. The committee defines a recession as “a significant decline in the level of economic activity, spread across the economy of the Euro Area, usually visible in two or more consecutive quarters of negative growth in GDP, employment and other measures of aggregate economic activity for the Euro Area as a whole.” The key differences with the Euro Area and US approach are that the EABCN focuses on quarterly data and uses a different set of indicators. 

While the EABCN defines recessions for the Euro Area as a whole, Euro Area member economies use their own chronologies and definitions. For example, in France, the French National Institute of Statistics and Economic Studies (INSEE) describes recession as “a period of temporary economic decline, characterized by a fall in trade and industrial activity.” The Deutsche Bundesbank, Germany’s central bank, simply describes a recession as “when GDP growth rate is lower than in the preceding periods.” At the same time, business cycle dating committees are also being set up in European economies, such as France and the UK. 

Recessions in Japan are determined following a method similar to the one employed by the US, where the assessment is based on a range of monthly indicators. Recessions in Japan are defined and determined by the Economic and Social Research Institute (ESRI), a government think tank responsible for compiling and releasing macroeconomic data for Japan. It bases its judgment on the coincident index, which is released on a monthly basis. Interestingly, with every release it makes an assessment of the situation, indicating whether business conditions are improving, weakening, worsening, etc. The coincident index consists of 10 indicators, including industrial production, shipments, retail sales, and export volumes. Just as do its counterparts in Europe and the US, it focuses on the breadth, the depth, and the duration of the slowdown in its decision regarding recessions. Its deliberations are made public, but it can take up to a year before a recession is confirmed. The Conference Board has developed a monthly reference cycle chronology for the Japanese economy by applying its standard approach. This generally agrees with the ESRI chronology.