I agree, but we still define a recession in terms of economic growth rates over the short term, and the zeroth-order effect of an oil price spike is to eat away at GDP proportionally to the increased cost of imports. It's the multipliers that will make it hurt, not the nominal price increase.
I agree, but we still define a recession in terms of economic growth rates over the short term, and the zeroth-order effect of an oil price spike is to eat away at GDP proportionally to the increased cost of imports.
It's the multipliers that will make it hurt, not the nominal price increase.
As disposable incomes shrink, demand for everything except core essentials dries up, GDP is hammered, and there's a credit crash as people default on loans and mortgages. So there's a personal tipping point that creeps up the income curve, as more and people fall off the bottom and their GDP contribution switches from positive to negative.
Likewise if margins shrink and businesses become unprofitable, businesses die, unemployment increases, demand goes down, and GDP is hammered again.
A useful exercise with real numbers would be to get some of the annual accounts posted by haulage and logistics companies at Companies House - that would show what kind of margins they're running on, and how close they are to being killed by current and future price increases.
So there's a personal tipping point that creeps up the income curve, as more and people fall off the bottom and their GDP contribution switches from positive to negative.
