4. Negative GDP growth – recession
Obviously, the growth matters. Higher the growth, the lower the debt to GDP levels. And as a recession is just a form of growth, thought negative (which is lower than positive) the model is correctly predicting significantly higher debt levels.
During a recession there are similar consequences to debt growth but with much worse results as economic growth in general is slowing debt growth pace. And recession is the worst way of “economic growth”.
Especially worth mentioning is the variant where during recession companies are trying to lower wages of their employees as a way to cut costs. It is a version where wages are falling faster than productivity which companies want to maintain at unchanged level.
So let´s compare pace of debt growth during variants of growth and recession where wages are growing (falling) 10% slower (faster) then productivity:
The efforts of companies to lower wage costs during recession are much more negatively influencing debt as during economic growth. The pressure to occurrence of higher debt is just stronger with these measures.
