Post-Great Recession Recovery Too Short and Too Shallow in the Euro Area
November 15, 2011
The Great Recession was associated with a 2008 calendar year uptick of Euroland GDP of just 0.4% followed by a contraction of 4.2% in 2009. In the ensuing recovery, real GDP expanded by 3.8% over the nine quarters between mid-2009 and 3Q11 including gains of just 0.2% each in the two most recent periods. A new recession probably began in the present quarter, before the region was able to reach its crest prior to the Great Recession.
Some troubled members of the common currency bloc have already been contracting. In the two years from 3Q09 to 3Q11, GDP fell by 9.1% in Greece and 0.5% in Portugal. Spanish GDP expanded merely 1.0%, and France, which had been considered a growth engine, experienced a 3.2% advance of GDP, which really isn’t very impressive for an eight-quarter interval of time.
Even Germany’s 7.9% advance of GDP over the ten quarters between 1Q09 and 3Q11 must be set against the severity of the Great Recession contraction when German GDP slumped as much as 6.7% in the downturn’s final four quarters to 1Q09.
The euro area is poorly equipped to cope with a new recession. The 10.2% unemployment rate at the onset of this new recession is already at a high and therefore poised to break considerable new ground. Among other things, a fresh contraction of activity hampers the task of deficit reduction and debt containment. While GDP, the denominator of debt-to-GDP and deficit-to-GDP ratios has essentially been flat-lined, the numerators of those ratios are climbing as one would expect when social safety net automatic stabilizers are engaged.
Investors believe no way exists to escape this vicious circle. It’s hard to argue with that conclusion. Fractious politics makes the the risk-off bet an even surer thing.
Copyright 2011, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland GDP
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