Friday, September 4, 2009

Is The Recession Over?

A recent report by the OECD suggested global growth was recovering quicker than expected.
After the shock of Q1, the OECD is now forecasting 0 or positive growth for many countries.

Annualised Quarter on Quarter Growth

Q1 2009
  • US - 6%
  • Japan - 11%
  • Eurozone - 9.2%
  • Germany - 13%
  • UK - 9.3%
Q4 2009 (forecast)
  • US 2.4%
  • Japan - 0.9%
  • Eurozone -2.0%
  • Germany -1.8%
  • UK - 0.0%
These are still forecasts and given the uncertainty, they could be different.
The only three countries to technically come out of recession are Japan, Germany and France. Both Germany and France posted positive growth in Q2 of 2009.

However, even when a country returns to positive economic growth, it doesn't mean the recession will feel like it is over.
  • Firstly, there is always a chance that a period of positive growth may be followed by more quarters of negative growth. For example, Japan posted annualised quarter growth of 3.3% in Q2 2009, but is forecast to slip back into recession with negative growth in the fourth quarter of 2009.
  • Also, even when growth becomes positive, unemployment is likely to keep rising. Or at the very least, it will take a long time for unemployment to fall. For example, in the Eurozone the rise in unemployment has been muted by strong protection for labour; this means it is more difficult to fire workers, but, also means firms can be more reluctant to hire when the economy recovers. (see: Unemployment)
  • Falling house prices and the ending of fiscal tax cuts will keep spending low and lead to sluggish growth. If growth is very low (e.g. less than 1%, there can still be a rise in spare capacity)
It could take a long time for economies to return to a period of stable growth. Neverthless, the statistics on global growth are promising because they will help to boost exports and confidence.

Note: Annualised Quarter on Quarter growth means we look at growth for an economic quarter and multiply by 4. e.g. if GDP fell by 2.3% in Q1 of 2009. This means the annualised quarter on quarter growth is -9.2%

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