Against the Grain: Roll on 2014: The last five years have been miserable for the global economy
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.