Digging Out of the Great Recession

September 28, 2010

From their quarterly lows in the recent recession, real GDP by 2Q10 had recovered 4.8% in Japan, 3.4% in Canada, 3.0% in the United States, 2.0% in Great Britain and 1.9% in the euro area.  But compared to their prior peaks, only Canada among these economies had essentially filled the hole made during the downturn.  Business cycle theorists like to talk about two broad stages of an economic upswing: the period when real GDP is climbing but remains below its prior cyclical high and the expansionary phase, which encompasses the business upturn after recessionary losses have been reversed.  The table below compares 2Q GDP to the recessionary lows in column one and to prior cyclical peaks in column two.


Real GDP Since Recession Low Since Prior Peak
United States +3.0% -1.3%
Euro Area +1.9% -3.5%
Japan +4.8% -4.3%
Britain +2.0% -4.6%
Canada +3.4% -0.1%


Although the United States ranks well above Europe and Japan in the recovery of real GDP lost during the recession, comparisons of unemployment tell a very different story.  The U.S. jobless rate is presently 9.462%.  That’s 118% greater than the 2004 low of 4.4%.  Canadian and Japanese jobless rates are presently 44% higher than their cyclical lows, and the comparable unemployment rate increases for Canada and the euro area are 40% and 39%.  The U.S. unemployment remains more than twice as much as it was before the recession, whereas the rest of the GDP experienced net increases of 50% or less in jobless rates.  Pre- recession and present levels of unemployment are indicated in the following table.

Before 4.4% 7.2% 3.6% 5.2% 5.8%
Now 9.6% 10.0% 5.2% 7.8% 8.1%


The gap separating these advanced economies from major developing economies like China and India has diminished at a more rapid pace since the world recession.  The first table above shows that most of the Group of Seven nations are still shy of the level of activity reached before the downturn.  Chinese and Indian GDP, by comparison, have risen by around 26% and 20%, respectively. 

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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