Great Recession/Addendum

International recession and recovery by region

The World

The crash of 2008 had an adverse effect upon most of the world's economies, but in 2008 it was only the more vulnerable of the industrialised economies that seemed likely to suffer major downturns. By the spring of 2009, however, most of the world's economies were facing severely damage. The United States and United Kingdom economies had at first suffered more seriously than most because of collapsing housing and consumer credit booms but it soon became apparent that more serious downturns were threatening the economies of Japan and Germany. Neither had experienced such booms, but both had proved to be exceptionally vulnerable to reductions in foreign demand for their exports resulting from reductions in world trade (which is estimated to have fallen by 7 per cent in the 4th quarter of 2008) - and particularly trade in capital goods. Most of the other developed economies (except Spain and Ireland) were also relatively free of such problems, but they too were damaged by loss of exports. The economies of commodity-exporting countries in Eastern Europe, the Middle East and South America suffered mainly from falls in commodity prices, and some other emerging economies were also damaged by the withdrawal of capital inflows from the developed economies.

America

International recession and recovery by region

The World

The crash of 2008 had an adverse effect upon most of the world's economies, but in 2008 it was only the more vulnerable of the industrialised economies that seemed likely to suffer major downturns. By the spring of 2009, however, most of the world's economies were facing severely damage. The United States and United Kingdom economies had at first suffered more seriously than most because of collapsing housing and consumer credit booms but it soon became apparent that more serious downturns were threatening the economies of Japan and Germany. Neither had experienced such booms, but both had proved to be exceptionally vulnerable to reductions in foreign demand for their exports resulting from reductions in world trade (which is estimated to have fallen by 7 per cent in the 4th quarter of 2008) - and particularly trade in capital goods. Most of the other developed economies (except Spain and Ireland) were also relatively free of such problems, but they too were damaged by loss of exports. The economies of commodity-exporting countries in Eastern Europe, the Middle East and South America suffered mainly from falls in commodity prices, and some other emerging economies were also damaged by the withdrawal of capital inflows from the developed economies.

America

The United States

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	2.0	0.4	-2.5	-1.6	-0.2	0.6	1.4

By early 2009, the United States economy was suffering from a severe lack of demand. Three and a half million jobs had been lost in just over a year and businesses were responding to falling demand by laying off workers or cutting back on their hours or wages, causing families to further reduce their demand and businesses to respond with yet more layoffs and cutbacks. The problem was being made worse by the inability of the financial system to provide the credit necessary for recovery, and the resulting "credit crunch" was causing more job losses and further declines in business activity, which, in turn, was adding more pressure on the financial system. Two and a half million families had faced foreclosure in the previous year, and the reductions in personal wealth resulting from the fall in house prices were causing further reductions in demand. Reports from the twelve Federal Reserve Districts in March suggested that national economic conditions deteriorated further during the reporting period of January through late February. Ten of the twelve reports indicated weaker conditions or declines in economic activity. The deterioration was broad based, with only a few sectors such as basic food production and pharmaceuticals appearing to be exceptions. Looking ahead, contacts from various districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010. The availability of credit generally remained tight. Lenders continued to impose strict standards for all types of loans, with scattered reports of further tightening and particular scrutiny focused on construction projects and commercial real estate transactions.

Canada

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	2.7	0.5	-2.6	-1.8	-0.9	0.2	1.2

Europe

The United Kingdom

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	3.0	0.7	-4.8	-2.6	-0.6	-0.3	0.3

The rapid growth of the British economy in the early years of the 21st century had been partly due to the success of its comparatively large financial sector and to the development of a comparatively vigorous housing boom, and those factors had a strong influence upon the impact of the recession that followed the collapse of the Lehman Brothers bank in the United States. Even before that collapse, some of its banks had been forced to make large writedowns because of their involvement in the subprime mortgages crisis and there had been a run on one of them , but the banking panic that followed the fall of Lehman Brothers, threatened the continued existence of the financial system. In October 2008 the British Government announced a £500 billion rescue scheme , including powers to take equity stakes in ailing banks and an undertaking to guarantee interbank loans. An impending collapse of the UK's financial system was averted, but the surviving banks adopted a policy of deleveraging that resulted in a severe credit crunch followed by a general economic downturn. In the second half of 2008 gdp fell by 2.2 per cent with falls in financial sector output and in housing and commercial investment. The effective exchange rate fell by about 20 per cent during 2008, but its effect was more than offset by falling overseas demand, and there was also a fall in exports. Early fiscal policy and monetary policy action was taken to tackle the growing recession . A fiscal stimulus amounting to 1.4 per cent of GDP was introduced by the November Pre-Budget Report, including a temporary 2.5 percentage point reduction in value-added tax and a bringing forward of £3 billion of capital investment, and by March 2009 the Bank of England had reduced its discount rate rate from 5% to 0.5% and begun a programme of quantitative easing. The UK’s national debt had been comparatively low at the outset of the recession (See the national debt comparison on the addendum subpage), but there was subsequently a large increase in the budget deficit, over 80 percent of which was due to the operation of automatic stabilisers.

In its pre-budget report of 2008 and its budget of 2009 the Government planned a fiscal tightening that would increase gradually to 6.4% of national income over eight years. Their plans included a reduction in public expenditure of £35 billion which, together with tax increases, would reduce borrowing by 3.2% of GDP by 2014. The Institute of Fiscal Studies estimates that, under those plans, thenational debt would roughly double from pre-crisis levels, to a little under 80% of national income, before declining again to its pre-crisis levels by the early 2030s. In September, the opposition Conservative party (the party that is expected to take over government in 2010) announced plans to make expenditure reductions of only £7 billion by 2014, but the right-wing Centre for Economic and Business Research assumes that a Conservative Chancellor would take earlier action than that planned by the Government, cutting public expenditure by £80 billion and raising taxes by £20 billion.

The Eurozone

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)		0.6	-3.9	-2.5	-0.1	0.4	0.1

Germany

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	2.5	1.3	-5.0	-3.5	0.4	0.7	0.0

The international banking panic had an immediate impact on Germany's fragmented banking system and in October 2008 the government set up a fund to guarantee the banks' debts and provide for recapitalisation and asset purchases. Although there had been falls in national output earlier in the year, the government did not at first consider further action to be necessary, but by the end of the year a fall in exports signalled the onset of major downturn, and in January of 2009 it launched a major fiscal stimulus (amounting eventually to 3.5 per cent of gdp) that included reductions in income, and payroll taxes(starting in July) as well as industrial subsidies and infrastructure investments. Those discretionary actions together with the action of the automatic stabilisers were expected to increase the budget deficit to 7% of GDP by 2010. Forecasters expect the downturn of the German economy to be deeper than those of other major industrialised countries except Japan.

France

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	2.2	0.8	-2.3	-1.4	0.3	0.2	0.6

The government adopted a fiscal stimulus amounting to over 1% of GDP, including infrastructure spending, measures to relieve cash-flow difficulties for small and medium-sized enterprises, tax holidays for low-income households, increased unemployment compensation, and loans to the car and aircraft industries. Together with the operation of automatic stabilisers, these measures are expected to raise the budget deficit to above 8% of gdp by 2010

Italy

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	1.6	-1.0	-5.0	-2.4	-0.5	0.3	-0.3

Iceland

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	5.6	1.7	-7.0	-4.2	1.2	-7.2	3.3

Before the Lehman Brothers collapse in September 2008, Iceland had a thriving economy, its government had a budgetary surplus, its banks had no toxic assets and its consumers had not indulged in any speculative bubbles. (Although Willem Buiter and Anne SIbert , believed that its banking model was not viable). A few months later its banking system had collapsed, its government was deeply in debt, its currency had suffered a 65 per cent depreciation, real earnings had fallen by 18 per cent, and its economy was facing a deep and prolonged recession. Those were the consequences of the impact of the international credit crunch on a banking system that had overseas debts amounting to almost ten times the country's GDP. Unable to roll over their debts, three of its largest banks had to be rescued by the government, and the consequent rise in national debt caused a flight from the national currency that made matters worse. A loan was obtained from the International Monetary Fund and recovery is expected during 2011 . In November 2009 Moody's downgraded Iceland to its lowest investment grade.

Ireland

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	6.0	-3.0	-7.5	-2.1	-0.8	0.3

A downturn in the output of the formerly booming Irish construction industry that started in 2007, intensified and developed into a full-blown economic recession in the course of 2008 and construction and property companies began to default on loans from the banks. News of their defaults made foreign banks and investors, that had been the banks' principal source of short-term finance, reluctant to risk further commitments, and a banking crisis developed. Consumer confidence fell and there was a very sharp increase in unemployment. In an attempt to restore confidence, the Irish government undertook to guarantee loans to the banks. The budget balance fell sharply from a surplus of 3 per cent of GDP in 2006 to a deficit of over 6 per cent in 2008, and foreign investors became wary of a sovereign default, and the government's ability to finance the deficit was threatened by a general loss of confidence. In March 2009 the Standard and Poor rating agency downgraded its rating for Ireland from AAA to AA+, and April, the government decided that the only way to restore confidence was to take steps to reduce its deficit - and took the extraordinary step of increasing taxation in the midst of a recession . Additional steps taken included direct purchase of stock in some banks and the establishment of the "National Asset Management Agency" - essentially a government-owned bank that will buy toxic debt from six financial institutions - both steps aimed at improving their balance sheets and freeing up capital.

GDP growth rates averaging about 6 percent over the period 1995-2007 were followed by year-on-year falls of 8 percent in the 4th quarter of 2008 and 9 per cent in the first quarter of 2009, and the HCIP inflation rate fell to -3 per cent in September 2009.

Russia

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)		5.6	-9.0

The fall in the oil price combined with the collapse in world trade and a withrawal of international credit had a devastating effect upon the Russian economy, and its GDP fell by about 10 percent in the first half of 2009 , and its 2009 GDP is estimated to be 8.5 per cent below its 2008 level. These events prompted the central bank to inject large amounts of liquidity into the banking sector and to permit a gradual depreciation of the rouble by about 25 per cent against the dollar-euro basket. The Government launched a major fiscal stimulus in April 2009, consisting mainly of social transfer payments[5].

Estonia, Latvia and Lithuania

Years of boom were followed by falls in GDP averaging 1.8 per cent in 2008 and 15.5 per cent in 2009.

Greece

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	4.5	2.0	-1.1	-1.0	-0.3	-0.5	-0.8

Asia

Japan

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	2.4	-0.6	-5.3	-3.6	1.5	-0.1	0.9

Japan has suffered a much deeper recession than the other large industrialised economies mainly because of its greater reliance upon exports of cars and high-technology products. Output was also restricted by a credit crunch and by the need to reduce high inventory levels .

China

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)		9.6	8.7

Australia

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	4.2	2.3	0.8	0.8	0.7	0.3	0.9

In 2009 there was a revival in exports to emerging markets, growth in consumer demand and a recovery in housing and mortgage markets, and in October the central bank raised its discount rate to 3.25%

.

Developing countries

According to a World Bank report published in March 2009, 94 out of 116 developing countries had experienced a slowdown in economic growth in 2008. The most affected sectors were those that were that had been the most dynamic, typically urban-based exporters, construction, mining, and manufacturing.

References

Canada

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	2.7	0.5	-2.6	-1.8	-0.9	0.2	1.2

Europe

The United Kingdom

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	3.0	0.7	-4.8	-2.6	-0.6	-0.3	0.3

The rapid growth of the British economy in the early years of the 21st century had been partly due to the success of its comparatively large financial sector and to the development of a comparatively vigorous housing boom, and those factors had a strong influence upon the impact of the recession that followed the collapse of the Lehman Brothers bank in the United States. Even before that collapse, some of its banks had been forced to make large writedowns because of their involvement in the subprime mortgages crisis and there had been a run on one of them , but the banking panic that followed the fall of Lehman Brothers, threatened the continued existence of the financial system. In October 2008 the British Government announced a £500 billion rescue scheme , including powers to take equity stakes in ailing banks and an undertaking to guarantee interbank loans. An impending collapse of the UK's financial system was averted, but the surviving banks adopted a policy of deleveraging that resulted in a severe credit crunch followed by a general economic downturn. In the second half of 2008 gdp fell by 2.2 per cent with falls in financial sector output and in housing and commercial investment. The effective exchange rate fell by about 20 per cent during 2008, but its effect was more than offset by falling overseas demand, and there was also a fall in exports. Early fiscal policy and monetary policy action was taken to tackle the growing recession . A fiscal stimulus amounting to 1.4 per cent of GDP was introduced by the November Pre-Budget Report, including a temporary 2.5 percentage point reduction in value-added tax and a bringing forward of £3 billion of capital investment, and by March 2009 the Bank of England had reduced its discount rate rate from 5% to 0.5% and begun a programme of quantitative easing. The UK’s national debt had been comparatively low at the outset of the recession (See the national debt comparison on the addendum subpage), but there was subsequently a large increase in the budget deficit, over 80 percent of which was due to the operation of automatic stabilisers.

In its pre-budget report of 2008 and its budget of 2009 the Government planned a fiscal tightening that would increase gradually to 6.4% of national income over eight years. Their plans included a reduction in public expenditure of £35 billion which, together with tax increases, would reduce borrowing by 3.2% of GDP by 2014. The Institute of Fiscal Studies estimates that, under those plans, thenational debt would roughly double from pre-crisis levels, to a little under 80% of national income, before declining again to its pre-crisis levels by the early 2030s. In September, the opposition Conservative party (the party that is expected to take over government in 2010) announced plans to make expenditure reductions of only £7 billion by 2014, but the right-wing Centre for Economic and Business Research assumes that a Conservative Chancellor would take earlier action than that planned by the Government, cutting public expenditure by £80 billion and raising taxes by £20 billion.

The Eurozone

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)		0.6	-3.9	-2.5	-0.1	0.4	0.1

Germany

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	2.5	1.3	-5.0	-3.5	0.4	0.7	0.0

The international banking panic had an immediate impact on Germany's fragmented banking system and in October 2008 the government set up a fund to guarantee the banks' debts and provide for recapitalisation and asset purchases. Although there had been falls in national output earlier in the year, the government did not at first consider further action to be necessary, but by the end of the year a fall in exports signalled the onset of major downturn, and in January of 2009 it launched a major fiscal stimulus (amounting eventually to 3.5 per cent of gdp) that included reductions in income, and payroll taxes(starting in July) as well as industrial subsidies and infrastructure investments. Those discretionary actions together with the action of the automatic stabilisers were expected to increase the budget deficit to 7% of GDP by 2010. Forecasters expect the downturn of the German economy to be deeper than those of other major industrialised countries except Japan.

France

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	2.2	0.8	-2.3	-1.4	0.3	0.2	0.6

The government adopted a fiscal stimulus amounting to over 1% of GDP, including infrastructure spending, measures to relieve cash-flow difficulties for small and medium-sized enterprises, tax holidays for low-income households, increased unemployment compensation, and loans to the car and aircraft industries. Together with the operation of automatic stabilisers, these measures are expected to raise the budget deficit to above 8% of gdp by 2010

Italy

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	1.6	-1.0	-5.0	-2.4	-0.5	0.3	-0.3

Iceland

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	5.6	1.7	-7.0	-4.2	1.2	-7.2	3.3

Before the Lehman Brothers collapse in September 2008, Iceland had a thriving economy, its government had a budgetary surplus, its banks had no toxic assets and its consumers had not indulged in any speculative bubbles. (Although Willem Buiter and Anne SIbert , believed that its banking model was not viable). A few months later its banking system had collapsed, its government was deeply in debt, its currency had suffered a 65 per cent depreciation, real earnings had fallen by 18 per cent, and its economy was facing a deep and prolonged recession. Those were the consequences of the impact of the international credit crunch on a banking system that had overseas debts amounting to almost ten times the country's GDP. Unable to roll over their debts, three of its largest banks had to be rescued by the government, and the consequent rise in national debt caused a flight from the national currency that made matters worse. A loan was obtained from the International Monetary Fund and recovery is expected during 2011 . In November 2009 Moody's downgraded Iceland to its lowest investment grade.

Ireland

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	6.0	-3.0	-7.5	-2.1	-0.8	0.3

A downturn in the output of the formerly booming Irish construction industry that started in 2007, intensified and developed into a full-blown economic recession in the course of 2008 and construction and property companies began to default on loans from the banks. News of their defaults made foreign banks and investors, that had been the banks' principal source of short-term finance, reluctant to risk further commitments, and a banking crisis developed. Consumer confidence fell and there was a very sharp increase in unemployment. In an attempt to restore confidence, the Irish government undertook to guarantee loans to the banks. The budget balance fell sharply from a surplus of 3 per cent of GDP in 2006 to a deficit of over 6 per cent in 2008, and foreign investors became wary of a sovereign default, and the government's ability to finance the deficit was threatened by a general loss of confidence. In March 2009 the Standard and Poor rating agency downgraded its rating for Ireland from AAA to AA+, and April, the government decided that the only way to restore confidence was to take steps to reduce its deficit - and took the extraordinary step of increasing taxation in the midst of a recession . Additional steps taken included direct purchase of stock in some banks and the establishment of the "National Asset Management Agency" - essentially a government-owned bank that will buy toxic debt from six financial institutions - both steps aimed at improving their balance sheets and freeing up capital.

GDP growth rates averaging about 6 percent over the period 1995-2007 were followed by year-on-year falls of 8 percent in the 4th quarter of 2008 and 9 per cent in the first quarter of 2009, and the HCIP inflation rate fell to -3 per cent in September 2009.

Russia

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)		5.6	-9.0

The fall in the oil price combined with the collapse in world trade and a withrawal of international credit had a devastating effect upon the Russian economy, and its GDP fell by about 10 percent in the first half of 2009 , and its 2009 GDP is estimated to be 8.5 per cent below its 2008 level. These events prompted the central bank to inject large amounts of liquidity into the banking sector and to permit a gradual depreciation of the rouble by about 25 per cent against the dollar-euro basket. The Government launched a major fiscal stimulus in April 2009, consisting mainly of social transfer payments[6].

Estonia, Latvia and Lithuania

Years of boom were followed by falls in GDP averaging 1.8 per cent in 2008 and 15.5 per cent in 2009.

Greece

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	4.5	2.0	-1.1	-1.0	-0.3	-0.5	-0.8

Asia

Japan

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	2.4	-0.6	-5.3	-3.6	1.5	-0.1	0.9

Japan has suffered a much deeper recession than the other large industrialised economies mainly because of its greater reliance upon exports of cars and high-technology products. Output was also restricted by a credit crunch and by the need to reduce high inventory levels .

China

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)		9.6	8.7

Australia

				2009				2010
	2007	2008	2009	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GDP (% change on previous period)	4.2	2.3	0.8	0.8	0.7	0.3	0.9

In 2009 there was a revival in exports to emerging markets, growth in consumer demand and a recovery in housing and mortgage markets, and in October the central bank raised its discount rate to 3.25%

.

Developing countries

According to a World Bank report published in March 2009, 94 out of 116 developing countries had experienced a slowdown in economic growth in 2008. The most affected sectors were those that were that had been the most dynamic, typically urban-based exporters, construction, mining, and manufacturing.