Extract E (line 12) states: 'Overall, the fears of a technical recession still dominate boardrooms.'

Explain the term 'technical recession' and analyse two reasons why business investment might fall during a recession.

Extract E: The Asia-Pacific Context

In the second quarter of 2023, regional real GDP growth slowed to a crawl, contracting by 0.3% in some major economies. Within this, heavy manufacturing and industrial output declined by 1.2%, whilst service sectors such as tourism and regional logistics showed only marginal gains.

Such weak growth figures are a reflection of the broader economic situation within the regional trade bloc. The likelihood is that the next few quarters will remain challenging, a pessimism shared by many trade partners. There has been a general deterioration in business confidence. Tightening monetary policy is affecting both investment and consumer credit. Weaknesses in global markets are holding back exports, which many had hoped would drive recovery.

Attention has turned back to domestic demand. While inflation is projected to ease, limited real wage growth continues to squeeze household disposable income. High levels of corporate and household debt also act as a major constraint on spending. Overall, the fears of a technical recession still dominate boardrooms.

There is an active debate over policy responses. Some economists argue that continuing with high interest rates to combat inflation is damaging consumer demand and business expansion unnecessarily. They advocate for a pausing of rate hikes, or even targeted fiscal support, to stimulate the supply side of the economy. However, central banks remain cautious, arguing that price stability is the only viable basis for long-term sustainable growth.