When does a credit crunch become a recession?

Posted by Ed Jones at Fri, 16/01/2009 - 9:56am in

On the face of it, Baroness Vadera’s “green shoots of recovery” gaffe appears to be a clear example of a statement delivered by a political or media figure out of sink with the economic realities.  But a closer examination of the way the past twelve turbulent months have been reported shows that critics and opinion-formers are very often ahead or behind of the economic curve.

If Baroness Vadera believed she could somehow increased confidence (either in the Government or the economy) she was proved wrong.  However, the impact of commentators on this crisis has at times been substantial.

Not only have some proved a key factor in consumer confidence, but economic realities have come to fulfil the media prophecies.  The BBC’s Robert Peston, whose own career is craftily hedged against the stability of the world economy, has often played a key role, illustrated by startling correlations between the timing of major market movements and his latest announcements.  Shares in HBOS more than doubled within minutes of the BBC Business Editor announcing the Lloyds TSB merger. Peston has arguably put himself at the heart of the narrative in a way that no football commentator or political pundit ever could.

While the relative impact of media discourse on the financial crisis is impossible to assess, it’s interesting to observe the language used by journalists and politicians to discuss the turmoil and the way this changed throughout the year.  I did some simple research into national press articles covering the whole of 2008.  A quick scan for the appearance of five common descriptions: “credit crunch”, “downturn”, “recession”, “financial crisis”, “depression”; reveals a great deal about how the narrative developed. 

At the beginning of 2008, the media already identified a seriously weakening economy. “Credit crunch” and “recession” were each used in 1200 national press articles in January alone. However, there was little talk of a financial crisis (131) and only 46 references to the onset of economic “depression”.

The use of each term increased steadily throughout the spring and summer, with little change in their relative popularity.  Reflecting the breathtaking events of the autumn, the media frame shifted dramatically.  Journalists’ language altered as they delivered a narrative of dramatic decline.  While references to a “credit crunch” had doubled by October, use of the word “recession” had tripled to become the most oft-used among our sample terms - around 4,000 major national press articles in November. 

The collapse of Lehmans, the failure of the $700 million US bail-out and the emergency recapitalisation of the UK banks delivered record falls in the FTSE and turned the story from a “credit crunch” to a “recession”.  By November, there had been a tenfold increase in talk of “depression”.

Plotting the media narrative against what may be perceived as more creditable measures of the economy (the FTSE, oil prices, GDP etc) shows the varying extent to which the media were in and out of sync with the economic realities. 

These patterns in media discourse will again be fascinating to observe in 2008. Will the narrative of decline turn more internal or global, how will it frame our political leaders, and will the media story improve before or after the scientific measures of economic activity?

Tagged with: Media, credit crunch, recession, Robert Peston, Vadera