Against the Grain: Roll on 2014: The last five years have been miserable for the global economy
18 December 2013 1:07am
THE END of a year is always a good time to take stock. And for the first time since 2007, the prospects for the UK economy for the year ahead look unequivocally good. But looking back, just how bad have the last few years been across the developed world as a whole? And how do they compare with previous recessions in a historical context? To keep you out of suspense, the answer to both of these questions is “pretty bad”. In one key respect, it has been awful.
In one sense, the length of the recession in 2008-09 was nothing especially remarkable. Using the GDP data on the OECD’s website, the evidence from 20 developed countries across the world shows that, during the first half of 2008, output had begun to fall – albeit slowly. This accelerated sharply following the collapse of Lehman Brothers in September of that year. The only countries in the group to have escaped any recession at all since that point are Australia and Poland.
By the end of 2009, GDP had begun to increase again across the globe. So on a widely-used definition of a recession in economics, it was over, and had lasted a maximum of two years. Looking at all recessions since the late nineteenth century, this was entirely in line with experience. A full 90 per cent of all recessions last for only one or two years.
The size of the recession, in contrast, was rather brutal. In the Eurozone, for example, the fall in GDP was over 6 per cent from peak to trough. Among the OECD countries as a whole, it was 5 per cent. Historically, only a quarter of all recessions exhibit a fall in output of 5 per cent or more. In the Great Recession of the 1930s, in a number of economies including America and Germany, GDP dropped by over 20 per cent. So while not as devastating as the 1930s, the fall in output this time was still a big one.
The really bad aspect of the recent recession, however, is the length of time it has taken for GDP to regain its previous peak level, reached before the crash. Using this definition of a recession (rather than the conventional one, where it ends when output stops falling), and excluding the years of the world wars, only 20 per cent of all recessions last more than two years. Just 13 per cent persist for more than three years, and only 6 per cent for more than five. The all-time record, as it were, is the 10 years it took the US to regain its 1929 level of GDP.
Following the 2008-09 recession, America and Canada regained their previous peak after some three years. The same was true of Germany and many in its immediate zone of influence, including Austria, Belgium, the Netherlands, Sweden and Switzerland. Even in these countries, however, the recession was long. But in 9 out of the 20 countries, output remains below its peak six years afterwards. The UK should get back next year, but the prospects for Italy, Spain, and Portugal look seriously dire.
Paul Ormerod is an economist at Volterra Partners, a director of the think tank Synthesis, and author of Why Most Things Fail: Evolution, Extinction and Economics.
In other news
Accounting, finance and economics - choose to study any of these subjects anywhere and you'll be likely to land [Read more]
Badly behaved bosses can be a nightmare if you're the unfortunate employee who has to work for them, however [Read more]
Last night hundreds of people in Kent were woken by a 4.2 magnitude earthquake, which occurred just before 3am. [Read more]
Are the UK's new crop of MPs actually any good at social media? [Read more]
The retail industry is in a state of flux. Consumers and technology are driving fundamental changes. And now, [Read more]
Newly re-elected Prime minister David Cameron will hold his first talks with European Union leaders today, as [Read more]
The Conservatives came to power on the back of an improving economy and with the promise of more improvement to [Read more]
Individual train operators say services are back on track as Network Rail blasts "deplorable" strike threat. [Read more]
Hewlett Packard (HP) announced disappointing earnings this afternoon, with revenues missing analysts expectations. [Read more]
In pictures: National waiters day kicks off with race around Hyde Park. [Read more]
Thomas Cook has revealed Georgios Chrysikopoulos, the general manager of the hotel in Corfu where children Christianne [Read more]
It's no surprise that we take to social media to vent our frustration when commuting, but a new report has shed [Read more]
Britain is losing billions each year from UK residents spending their money abroad on holidays, while overseas [Read more]
Waiting staff are out on protest today in central London over low pay and claims that Pizza Express management [Read more]
Sajid Javid’s new enterprise bill, announced this week in Bristol, is certainly well intentioned, but it's unlikely [Read more]
Just as Prime Minister David Cameron outlined his stance on tackling immigration, figures were published showing [Read more]
Bright-eyed graduates eager to train at one of London's leading law firms may have to stomach long hours, however [Read more]
With candidates lining up to take over Ed Miliband as the new Labour leader, divisions in the party are appearing [Read more]