Great Recession/Addendum: Difference between revisions
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By 2010, the UK’s [[national debt]] had risen from under 50 percent of GDP to over 80 percent<ref name=debt/>, due mainly to the operation of its[[automatic stabilisers]], prompting expressions of concern by the [[credit rating agency|credit rating agencies]] and plans for its reduction were being debated. had In its pre-budget report of 2008 and its budget of 2009 the Government planned a [[fiscal tightening]] that would increase gradually to 6.4% of national income over eight years. Their plans included a reduction in [[public expenditure]] of £35 billion which, together with tax increases, would reduce borrowing by 3.2% of GDP by 2014. The Institute of Fiscal Studies estimates that, under those plans, the[[national debt]] would roughly double from pre-crisis levels, to a little under 80% of national income, before declining again to its pre-crisis levels by the early 2030s<ref>[http://www.ifs.org.uk/bns/bn87.pdf. Robert Chote et al: ''Britain's Fiscal Squeeze, the Choices Ahead'', IFS Briefing Note BN87, September 2009]</ref>. | By 2010, the UK’s [[national debt]] had risen from under 50 percent of GDP to over 80 percent<ref name=debt/>, due mainly to the operation of its[[automatic stabilisers]], prompting expressions of concern by the [[credit rating agency|credit rating agencies]] and plans for its reduction were being debated. had In its pre-budget report of 2008 and its budget of 2009 the Government planned a [[fiscal tightening]] that would increase gradually to 6.4% of national income over eight years. Their plans included a reduction in [[public expenditure]] of £35 billion which, together with tax increases, would reduce borrowing by 3.2% of GDP by 2014. The Institute of Fiscal Studies estimates that, under those plans, the[[national debt]] would roughly double from pre-crisis levels, to a little under 80% of national income, before declining again to its pre-crisis levels by the early 2030s<ref>[http://www.ifs.org.uk/bns/bn87.pdf. Robert Chote et al: ''Britain's Fiscal Squeeze, the Choices Ahead'', IFS Briefing Note BN87, September 2009]</ref>. | ||
The United Kingdom entered the recession 1n 2007 with a [[national debt]] of 44 per cent of its GDP which is projected to rise to 98 percent by 2014<ref name=debt> | The United Kingdom entered the recession 1n 2007 with a [[national debt]] of 44 per cent of its GDP which is projected to rise to 98 percent by 2014<ref name=debt/> | ||
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but in view of the substantial [[output gap]] that remained at the end of 2009 they estimate that the pre-crisis level of production will not be reached until 2013. | but in view of the substantial [[output gap]] that remained at the end of 2009 they estimate that the pre-crisis level of production will not be reached until 2013. | ||
Germany entered the recession 1n 2007 with a [[national debt]] of 63 per cent of its GDP which is projected to rise to 101 percent by 2014<ref name=debt> | Germany entered the recession 1n 2007 with a [[national debt]] of 63 per cent of its GDP which is projected to rise to 101 percent by 2014<ref name=debt/> | ||
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market to keep on functioning, | market to keep on functioning, | ||
The government introduced [[fiscal stimulus]] measures amounting to 0.6 per cent of GDP spread over the two years 2009-10<ref name=stimulus/>, including infrastructure spending, measures to relieve cash-flow difficulties for small and medium-sized enterprises, tax holidays for low-income households, increased unemployment compensation, and loans to the car and aircraft industries. Together with the operation of [[automatic stabilisers]], these measures are expected to raise the [[budget deficit]] to above 8% of GDP and the [[national debt]] to over 90 per cent of GDP by 2010<ref name=debt/>. | The government introduced [[fiscal stimulus]] measures amounting to 0.6 per cent of GDP spread over the two years 2009-10<ref name=stimulus/>, including infrastructure spending, measures to relieve cash-flow difficulties for small and medium-sized enterprises, tax holidays for low-income households, increased unemployment compensation, and loans to the car and aircraft industries. Together with the operation of [[automatic stabilisers]], these measures are expected to raise the [[budget deficit]] to above 8% of GDP and the [[national debt]] to over 90 per cent of GDP by 2010<ref name=debt/>. | ||
France entered the recession 1n 2007 with a [[national debt]] of 64 per cent of its GDP which is projected to rise to 96 percent by 2014<ref name=debt/> | |||
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[[Great Recession/Addendum#The World|'''RETURN TO TOP''']] | [[Great Recession/Addendum#The World|'''RETURN TO TOP''']] | ||
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<ref>[http://www.oecd.org/dataoecd/59/6/42902825.pdf ''Economic Survey of Italy'', OECD, June 2009]</ref> | <ref>[http://www.oecd.org/dataoecd/59/6/42902825.pdf ''Economic Survey of Italy'', OECD, June 2009]</ref> | ||
Italy entered the recession 1n 2007 with a [[national debt]] of 104 per cent of its GDP which is projected to rise to 129 percent by 2014<ref name=debt> | Italy entered the recession 1n 2007 with a [[national debt]] of 104 per cent of its GDP which is projected to rise to 129 percent by 2014<ref name=debt/> | ||
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The government introduced [[fiscal stimulus]] measures amounting to 2 per cent of GDP <ref name=stimulus/>. Combined with the effect of the country's [[automatic stabilisers]], its [[national debt]] (the majority of which was held by domestic investors) is expected to rise to over 200 per cent of GDP from its already massive pre-crisis level of 167 per cent<ref name=debt/>. | The government introduced [[fiscal stimulus]] measures amounting to 2 per cent of GDP <ref name=stimulus/>. Combined with the effect of the country's [[automatic stabilisers]], its [[national debt]] (the majority of which was held by domestic investors) is expected to rise to over 200 per cent of GDP from its already massive pre-crisis level of 167 per cent<ref name=debt/>. | ||
Japan entered the recession 1n 2007 with a [[national debt]] of 188 per cent of its GDP which is projected to rise to 246 percent by 2014<ref name=debt> | Japan entered the recession 1n 2007 with a [[national debt]] of 188 per cent of its GDP which is projected to rise to 246 percent by 2014<ref name=debt/> | ||
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Revision as of 02:09, 3 April 2010
International recession and recovery by region
The World
2009 2010 2007 2008 2009 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 GDP (% change on previous period)[1] 3.9 1.7 -2.2
The financial crisis had an adverse effect upon most of the world's economies, but its greatest impact was on the high income countries (The United States, Canada Europe and Japan) with a collective GDP reduction in 2009 of 3.3 per cent. Next in severity were the downturns of the developing economies excluding China and India with a collective GDP reduction of 2.2 per cent[1], mainly as a result of the loss of capital inflows and of a collapse of world trade[2], and by the spring of 2009 most of the world's economies were facing severe damage. There were large variations in impact, however. It had little effect on the South Asian economies, the East Asian economies were less adversely affected by the crisis than other regions, and the impacts on the economies of China and India took the form only of significant growth rate reductions. The severest effects were upon the economies of the Baltic States, Iceland and Ireland.
The advanced G20 countries entered the recession 1n 2007 with a national debt averaging 78 per cent of GDP, which is projected to rise to 118 per cent by 2014[3]
America
The United States
| 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2008 | 2009 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |
| GDP (% change at annual rate) [4] | 2.0 | 0.4 | -2.5 | 1.2 | 3.2 | 3.6 | 2.1 | -0.7 | 1.5 | -2.7 | -5.4 | -6.4 | -0.7 | 2.2 | 5.6 | ||||
| Unemployment (% of labour force)[5] | 4.6 | 5.8 | 9.3 | 4.5 | 4.4 | 4.6 | 4.7 | 5.0 | 5.4 | 6.1 | 6.9 | 8.2 | 9.3 | 9.7 | 10.0 | ||||
| Consumer prices (% increase on the same period of the previous year)[6] | 3.8 | -0.4 | 2.8 | 2.7 | 2.0 | 4.3 | 4.0 | 4.2 | 5.4 | 1.1 | 0.2 | -1.3 | -1.5 | 1.8 | |||||
The growth rate of American economy slowed sharply from around 3 per cent in 2006 to 2 per cent in 2007 and the economy continued to operate at below its trend rate of growth until the fourth quarter of 2009. Following the bursting of the house price bubble and the development of the subprime mortgage crisis in 2007, two and a half million families faced foreclosure in 2008, and the reductions in personal wealth resulting from the fall in house prices were causing further reductions in demand. The financial crash of 2008, and the resulting credit crunch, caused further declines in business activity, which added more pressure on the financial system and three and a half million Americans lost their jobs in the course of 2008[7]. Credit remained tight in 2009 with lenders imposing strict standards for all types of loans [8] and unemployment continued to rise throughout the year.
As the economy started to recover in late 2009, attention turned to the problem of reduction of restoring fiscal sustainability without endangering the recovery. The Federal budget deficit had risen sharply under the operation of the economy's automatic stabilisers, the Federal Government had introduced measures of fiscal stimulus amounting to 5.6 per cent of GDP spread over the three years 2008 to 2010[9], and by 2010 the national debt had risen from its 2007 level of 62 percent of GDP to over 90 per cent[3]
The United States entered the recession 1n 2007 with a national debt of 63 per cent of its GDP which is projected to rise to 108 percent by 2014[3]
Canada
The Canadian mortgage market did not experience the surge in defaults that triggered the subprime mortgage crisis in the United States, and the subsequent financial crash of 2008 had little effect upon the Canadian financial system. Events in the United States nevertheless affected the rest of the Canadian economy. The economic growth rate faltered in the Autumn of 2007 as exports fell in response to falling demand from the United States, and the downturn developed into a sharp contraction, led by falling investment and household spending, in the last quarter of 2008. The government introduced fiscal stimulus measures amounting to 4 per cent of GDP spread over the three years 2008-10[9], and a modest recovery started in the second half of 2009.
Central and Southern America
Among the United States' southern neighbours, the Mexican economy suffered the deepest contraction, with quarterly GDP down 9.7 and 6.3 percent in the second and third quarters of 2009. In Brazil, GDP fell by 0.2 percent year-on-year in the first two quarters of the crisis period, but rebounded in the second and third quarter of 2009. In Argentina, GDP increased by 0.5 and 0.2 percent on an annualized basis in the second and third quarters of 2009[12].
Europe
The United Kingdom
The rapid growth of the British economy in the early years of the 21st century had been partly due to the success of its comparatively large financial sector and to the development of a comparatively vigorous housing boom, and those factors had a strong influence upon the impact of the recession that followed the collapse of the Lehman Brothers bank in the United States. Even before that collapse, some of its banks had been forced to make large writedowns because of their involvement in the subprime mortgages crisis and there had been a run on one of them [13], but the banking panic that followed the fall of Lehman Brothers, threatened the continued existence of the financial system. In October 2008 the British Government announced a £500 billion rescue scheme [14], including powers to take equity stakes in ailing banks and an undertaking to guarantee interbank loans. An impending collapse of the UK's financial system was averted, but the surviving banks adopted a policy of deleveraging that resulted in a severe credit crunch followed by a general economic downturn. In the second half of 2008 gdp fell by 2.2 per cent with falls in financial sector output and in housing and commercial investment. The effective exchange rate fell by about 20 per cent during 2008, but its effect was more than offset by falling overseas demand, and there was also a fall in exports. Early fiscal policy and monetary policy action was taken to tackle the growing recession . A fiscal stimulus amounting to 1.5 per cent of GDP[9] was introduced by the November Pre-Budget Report, including a temporary 2.5 percentage point reduction in value-added tax and a bringing forward of £3 billion of capital investment, and by March 2009 the Bank of England had reduced its discount rate rate from 5% to 0.5% and begun a programme of quantitative easing.
By 2010, the UK’s national debt had risen from under 50 percent of GDP to over 80 percent[3], due mainly to the operation of itsautomatic stabilisers, prompting expressions of concern by the credit rating agencies and plans for its reduction were being debated. had In its pre-budget report of 2008 and its budget of 2009 the Government planned a fiscal tightening that would increase gradually to 6.4% of national income over eight years. Their plans included a reduction in public expenditure of £35 billion which, together with tax increases, would reduce borrowing by 3.2% of GDP by 2014. The Institute of Fiscal Studies estimates that, under those plans, thenational debt would roughly double from pre-crisis levels, to a little under 80% of national income, before declining again to its pre-crisis levels by the early 2030s[15].
The United Kingdom entered the recession 1n 2007 with a national debt of 44 per cent of its GDP which is projected to rise to 98 percent by 2014[3]
The Eurozone
The recession had widely differing impacts upon the economies of members of the European Union's monetary union but all were subject to the monetary policy of the European Central Bank. The bank responded to the recession by reducing its discount rate in stages to a minimum of 1 per cent, and adopting a limit amount of quantitative easing. Member governments of the European Union are required to comply with its stability and growth pact limits on their budget deficit of 3 per cent of GDP and on their national debt of 60 per cent of GDP, or to adopt its excessive deficit procedure with a view to acheiving compliance. Few member governments were in compliance with those limits in early 2010 [16]. Member governments of the "PIIGS" countries (Portugal, Ireland, Italy, Greece and Spain) were the farthest from compliance.
=
Germany
The international banking panic had an immediate impact on Germany's fragmented banking system and in October 2008 the government set up a fund to guarantee the banks' debts and provide for recapitalisation and asset purchases. Although there had been falls in national output earlier in the year, the government did not at first consider further action to be necessary, but by the end of the year a fall in exports signalled the onset of major downturn, and in January of 2009 it launched a fiscal stimulus amounting to 3 per cent during 2009 and 2010[9], that included reductions in income, and payroll taxes(starting in July) as well as industrial subsidies and infrastructure investments. Those discretionary actions together with the action of the automatic stabilisers were expected to increase the budget deficit to 7% of GDP and raise the national debt from its 2007 level of 65 per cent of GDP to over 80 per cent by 2010[3]. The recovery in the second half of 2009 has been attributed by the OECD to the fiscal stimulus, expansionary monetary conditions, an upswing in world trade and restocking activities of companies[17] but in view of the substantial output gap that remained at the end of 2009 they estimate that the pre-crisis level of production will not be reached until 2013.
Germany entered the recession 1n 2007 with a national debt of 63 per cent of its GDP which is projected to rise to 101 percent by 2014[3]
France
- ↑ 1.0 1.1 Global Economic Prospects, World Bank, January 2010
- ↑ Kristian Behrens, Gregory Corcos and Giordano Mion: Trade collapse or trade crisis?, Vox, 21 March 2010
- ↑ 3.0 3.1 3.2 3.3 3.4 3.5 3.6 The State of Public Finances, Cross-Country Fiscal Monitor: IMF Staff Position Note, November 2009 Cite error: Invalid
<ref>tag; name "debt" defined multiple times with different content - ↑ News Release, Bureau of Economic Affairs, March 2010
- ↑ seasonally adjusted Bureau of Labor Statistics data[1]
- ↑ 6.0 6.1 6.2 6.3 6.4 6.5 mid-quarter figures [2]
- ↑ Based on Treasury Secretary Tim Geithner's statement to the Senate Finance Committee March 4 2009
- ↑ Federal Reserve "Beige Book", March 2009
- ↑ 9.0 9.1 9.2 9.3 OECD Economic Outlook Interim Report Chapter 3, March 2009
- ↑ 10.0 10.1 10.2 10.3 10.4 OECD StatExtracts at[3] & [4]
- ↑ 11.0 11.1 11.2 11.3 11.4 seasonally adjusted [5]
- ↑ Prospects for Developing Economies, Global Economic Prospects Chapter1, World Bank, 21 January 2010
- ↑ Rush on Northern Rock Continues, BBC News 17 September 2007
- ↑ Rescue Plan for UK Banks Unveiled, BBC News 8 October 2008
- ↑ Robert Chote et al: Britain's Fiscal Squeeze, the Choices Ahead, IFS Briefing Note BN87, September 2009
- ↑ Commission assesses stability and convergence programmes of fourteen EU Member States, European Commission, 17 March 2010]
- ↑ Economic Survey of Germany, OECD, March 2010