Recession or cycle?

There is lots - lots and lots - of talk in the UK at the moment of an economic recession. High oil prices are blamed for much of the problem, no doubt accurately. But will it be a recession? There is another candidate, a long term shift in the growth of the UK and other Western economies.

Recessions in the 1970s or early 1980s followed oil price hikes when the OPEC cartel raised its prices. The UK emerged from the recession following price reductions. This time, oil price increases are caused (as I mentioned in my last post) in large part by increased global demand from emerging countries whose economic size will soon be comparable with the combined size of current developed nations. This demand won't be reversed barring major global economic downturns when all countries will be in trouble, so the UK and the West will have to adjust to higher prices permanently. These prices have been associated with recessions in the past. So, the West may have to move along with slower growth for a longer period.

There will be an upswing eventually. It relies on the emerging countries wanting to buy Western goods, innovating and transferring technology to the West, and generally acting as Western countries do today. This shift takes time, so the current downturn in the UK economy may be less of a business cycle-type recession, and instead one of the longer cycles which economic historians have identified.