Monday, May 3, 2010


A global recession is a period of global economic slowdown. The

International Monetary Fund (IMF) takes many factors into

account when defining a global recession, but it states that global

economic growth of 3 percent or less is "equivalent to a global


Informally, a national recession is a period of declining

productivity. Some rules of thumb to identify a recession include

two successive quarterly declines in gross domestic product

(GDP), a measure of the nation's output. This two-quarter metric is

now a commonly held definition of a recession. In the United States, the

National Bureau of Economic Research (NBER) is regarded as the

authority which identifies a recession and which takes into account

several measures in addition to GDP growth before making an

assessment. In many developed nations other than USA, the two-quarter

rule is also used for identifying a recession.

Whereas a national recession is identified by two quarters of decline,

defining a global recession is more difficult, because developing nations

are expected to have a higher GDP growth than developed nations.

The IMF estimates that global recessions seem to occur over a cycle

lasting between 8 and 10 years. During what the IMF terms the past three

global recessions of the last three decades, global per capita output

growth was zero or negative.

Since 1980 there have been only eight periods of negative economic

growth over one fiscal quarter or more, and four periods considered

recessions. Major recessions that occurred in the world from 1980's are

discussed below.

(3) of (8)

Early 1980s recession

The early 1980s recession was a severe recession in the United States

which began in December of 1980 and ended in November 1982. It has

been thought that the primary cause of the recession was a

contractionary monetary policy established by the Federal Reserve

System to control high inflation.

In the wake of the 1973 oil crisis and the 1979 energy crisis, stagflation

began to afflict the economy of the United States. Unemployment had

risen from 5.1% in January 1974 to a high of 9.0% in May 1975. Although

it had gradually declined to 5.6% by May 1979, unemployment began

rising again thereafter. It jumped sharply to 6.9% in April 1980 and to

7.5% in May 1980. A mild recession from January to July 1980 kept

unemployment high, but despite economic recovery unemployment

remained at historically high levels (about 7.5%) through the end of


Inflation, which had averaged 3.2% annually in the post-war period, had

more than doubled after the 1973 oil shock to a 7.7% annual rate.

Inflation reached 9.1% in 1975, the highest rate since 1947. Inflation

declined to 5.8% the following year, but then edged higher. By 1979,

inflation reached a startling 11.3% and in 1980 soared to 13.5%.

Several key industries—including housing, steel manufacturing and

automobile production—experienced a downturn from which they did not

recover through the end of the next recession.

This recession marked the early years of Reagan's presidency in U.S.,

hitting almost all sections of the country. Real gross national product

(GNP) fell by 2.5 percent in 1982, as the unemployment rate rose above

10 percent and almost one-third of America's industrial plants lay idle.

Throughout the Midwest, major firms like General Electric and

International Harvester released workers.

The oil crisis contributed to the decline. As gains in U.S. productivity

slowed, economic rivals such as Germany and Japan won a greater share

of world trade. American consumption of goods produced by other

countries rose sharply.

Farmers also suffered hard times. The number of farmers declined, as

(4) of (8)

production became concentrated in the hands of a smaller number.

During the 1970s, American farmers had helped India, China, the Soviet

Union and other countries suffering from crop shortages, and had

borrowed heavily to buy land and increase production. Then the rise in oil

prices raised farm costs and a worldwide economic slump in 1980 reduced

the demand for farm products. Farmers had major difficulties making

ends meet.

But the deep recession throughout 1982 -- combined with falling oil prices

-- had one important benefit: it curbed the runaway inflation that had

started during the Carter years. Conditions improved for some segments

of the economy in late 1983; by early 1984, the economy rebounded and

the United States entered one of the longest periods of sustained

economic growth since World War II.

Early 1990s recession

The recession of the early nineteen-nineties was an economic recession

that hit much of the world in 1990-91.

On Black Monday of October 1987 a stock collapse of

unprecedented size lopped 22.6 percent off the Dow Jones

Industrial Average. The collapse, larger than that of 1929, was handled

well by the economy, and the stock market began to quickly recover.

However, in North America, the lumbering savings and loans industry was

beginning to collapse, leading to a savings and loan crisis which put the

financial wellbeing of millions of Americans in jeopardy.

The panic that followed led to a sharp recession that hit hardest those

countries most closely linked to the United States, including Canada,

Australia, and the United Kingdom. The economies of much of Europe and

Japan were hurt, but not as badly. The US economy continued to grow as

a whole, although certain sectors of the market such as energy and real

estate slumped.

The first burst of the recession was short-lived, as fervent preelection

activity by the governments of the United States and

Canada created what many economists at the time saw as an

economic miracle: a growing consumer confidence and increased

(5) of (8)

consumer spending almost single-handedly lifted the North American

economy out of recession.

It soon turned out that the quick recovery was illusory, and by 1990,

economic malaise had returned with the beginning of the Gulf War

and the resulting 1990 spike in the price of oil, which increased

inflation but to less of a degree as the oil crisis ten years earlier.

Nevertheless, for the next several years' high unemployment, massive

government budgetary deficits, and slow Gross Domestic Product (GDP)

growth affected the United States until late 1992 and Canada until 1995.

The rest of the world was less affected by the downturn; Germany and

Japan both grew rapidly.

Like all recessions, the one of the late 1980s and early 1990s had a

profound impact on society. Rates of alcoholism and drug abuse

increased, as did rates of depression.

Early 2000s recession

The early 2000s recession was a decline in economic activity

which occurred mainly in Western countries. It affected the

European Union mostly during 2000 and 2001 and the United

States mostly in 2002 and 2003

The early 2000s recession had been predicted by economists for years,

because the boom of the 1990s, which was accompanied by both low

inflation and low unemployment, had already ceased in East Asia during

the 1997 Asian financial crisis. The 1990s were also a period of recession

between 1995 and 1998 inclusive. The early 2000s recession was not as

bad as many predicted it would be, nor was it as bad as either of the two

previous worldwide recessions.

In the U.S. the recession was characterized by large layoffs,

outsourcing, and a jobless recovery, with many formerly high-paid

manufacturing and professional employees being forced into much

lower paid service positions.

The NBER's Business Cycle Dating Committee has determined that a peak

in business activity occurred in the U.S. economy in March 2001. A peak

(6) of (8)

marks the end of an expansion and the beginning of a recession. The

determination of a peak date in March is thus a determination that the

expansion that began in March 1991 ended in March 2001 and a recession

began. The expansion lasted exactly 10 years, the longest in the NBER's


According to the National Bureau of Economic Research (NBER), which is

the private, nonprofit, nonpartisan organization charged with determining

economic recessions, the U.S. economy was in recession from March 2001

to November 2001, a period of eight months at the beginning of President

George W. Bush's term of office. However, economic conditions did not

satisfy the common shorthand definition of recession, which is "a fall of a

country's real gross domestic product in two or more successive

quarters," and has led to some confusion about the procedure for

determining the starting and ending dates of a recession.

The NBER's Business Cycle Dating Committee (BCDC) uses monthly,

rather than quarterly, indicators to determine peaks and troughs in

business activity, as can be seen by noting that starting and ending dates

are given by month and year, not quarters.

From 2000 to 2001, the Federal Reserve in a move to quell the stock

market, made successive interest rate increases, credited in part for

"plunging the country into a recession." Using the stock market as an

unofficial benchmark, a recession would have begun in March 2000 when

the NASDAQ crashed following the collapse of the Dot-com bubble.

The Dow Jones Industrial Average was relatively unscathed by the

NASDAQ's crash until the September 11, 2001 attacks, after which the

DJIA suffered its worst one-day point loss and biggest one-week losses in

history up to that point. The market rebounded, only to crash once more

in the final two quarters of 2002. In the final three quarters of 2003, the

market finally rebounded permanently, agreeing with the unemployment

statistics that a recession defined in this way would have lasted from

2001 through 2003. Effect of this recession on other countries is

explained below.

Canada's economy is closely linked to that of the United States, and

economic conditions south of the border tend to quickly make their way

north. Canada's stock markets were especially hard hit by the collapse in

high-tech stocks. The events of September 11 also hurt the Canadian

(7) of (8)

stock markets and were especially devastating to the already troubled

airline sector.

However in the wider economy Canada was surprisingly unhurt by these

events. While growth slowed, the economy never actually entered a

recession. This was the first time that Canada had avoided following the

United States into an economic downturn. The rate of job creation in

Canada continued at the rapid pace of the 1990s. A number of

explanations have been advanced to explain this. Canada was not as

directly affected by 9/11 and the subsequent wars, and the downward

pressure of these events was more muted. Canada's fiscal management

during the period has been praised as the federal government continued

to bring in large surpluses throughout this period, in sharp contrast to the

United States. Unlike the United States no major tax cuts or major new

expenditures were introduced. However, during this time, Canada did

pursue an expansionary monetary policy in an effort to reduce the effects

of a possible recession. Many provincial governments suffered greater

problems with a number of them returning to deficits, which was blamed

on the fiscal imbalance. 2003 saw elections in six Canadian provinces and

in only one did the governing party not lose seats.

The Soviet Union's last year of economic growth was 1989, and

throughout the 1990s, recession ensued in the Former Soviet Republics.

In May 1998, following the 1997 crash of the East Asian economy, things

began to get even worse in Russia. In August 1998, the value of the ruble

fell 34% and people clamored to get their money out of banks (see 1998

Russian financial crisis). The government acted by dragging its feet on

privatization programs. Russians responded to this situation with approval

by electing the more pro-dirigist and less liberal Vladimir Putin as

President in 2000. Putin proceeded to reassert the role of the federal

government, and gave it power it had not seen since the Soviet era.

State-run businesses were used to out-compete some of the more

wealthy rivals of Putin. Putin's policies were popular with the Russian

people, gaining him re-election in 2004. At the same time, the exportoriented

Russian economy enjoyed considerable influx of foreign currency

thanks to rising worldwide oil prices (from $15 per barrel in early 1999 to

an average of $30 per barrel during Putin's first term). The early 2000s

recession was avoided in Russia due to rebound in exports and, to some

degree, a return to dirigisme.

Japan's recession, which started in the early 1990s, continued into the

(8) of (8)

2000s, with deflation being the main problem. Deflation began plaguing

Japan in the fiscal year ending 1999, and by 2005 the yen had 103% of

its 2000 buying power. The Bank of Japan attempted to cultivate inflation

with high liquidity and a nominal 0% interest rate on loans. Other aspects

of the Japanese economy were good during the early 2000s;

unemployment remained relatively low, and China became somewhat

dependent on Japanese exports. The bear market, however, continued in

Japan despite the best efforts of the Bank.

Transition left the economy of the European Union in a cautiously

optimistic state during the early 2000s. The European Union introduced a

new currency on January 1, 1999. The euro, which was met with much

anticipation, had its value immediately plummet, and it continued to be a

weak currency throughout 2000 and 2001.

No comments:

Post a Comment