Great Recession/Addendum

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This addendum is a continuation of the article Great Recession.


International recession and recovery by region

The World

GDP growth (%)[1])
2007 2008 2009 2010e
5.2 1.7 -2.1 3.3
Trade growth (vol%)[12]
2007 2008 2009 2010e
7.2 3.2 -11.6 6.8

The financial crisis had an adverse effect upon most of the world's economies. Those worst affected include the high income countries (The United States, Canada, Europe and Japan) with a collective GDP reduction in 2009 of 3.3 per cent. Output reductions between the peak in 2008 and the trough in 2009 were approximately 4 per cent of GDP in the United States, 6 percent in the United Kingdom, 6½ per cent in Italy, 7 per cent in Germany and 8½ per cent in Japan[2]. Next in severity were the downturns of the developing economies (excluding China and India) with a collective GDP reduction of 2.2 per cent[1] The recession had little effect on the South Asian economies, and a comparatively small effect on the East Asian economies. Its impact on the economies of China and India took the form only of significant growth rate reductions.

The advanced G20 countries entered the recession in 2007 with a public debt averaging 78 per cent of GDP (United Kingdom 44 per cent, United States 62, Germany 63, France 64, Italy 104, Japan 188), which is projected to rise to 118 per cent by 2014 (Germany 89 per cent , France 96, United Kingdom 98, United States 108, Italy 129, Japan 246 )[3]

Economic growth returned to most countries in the course of 2009 at or above pre-recession levels in most developing countries, but below pre-recession rates in many industrialised countries.

America

The United States

2007 2008 2009 2010
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous quarter at an annual rate) [4][5] 0.0 -2.7 2.7 2.1 1.2 3.2 3.6 2.1 -0.7 1.5 -2.7 -5.4 -6.4 -0.7 2.2 5.6 3.7 1.7 2.6 3.2
Unemployment (% of labour force)[6] 5.8 9.3 9.6 9.4 4.5 4.4 4.6 4.7 5.0 5.4 6.1 6.9 8.2 9.3 9.7 10.0 9.7 9.6 9.7 9.8
Consumer prices (% increase on the same period of the previous year)[7][5] 3.8 -0.4 1.6 1,1 2.8 2.7 2.0 4.3 4.0 4.2 5.4 1.1 0.2 -1.3 -1.6 1.4 2.4 1.8

The growth rate of American economy slowed sharply from around 3 per cent in 2006 to 2 per cent in 2007 and the economy continued to operate at below its trend rate of growth until the fourth quarter of 2009. Following the bursting of the house price bubble and the development of the subprime mortgage crisis in 2007, two and a half million families faced foreclosure in 2008, and the reductions in personal wealth resulting from the fall in house prices were causing further reductions in demand. The financial crash of 2008, and the resulting credit crunch, caused further declines in business activity, which added more pressure on the financial system and three and a half million Americans lost their jobs in the course of 2008[8]. Credit remained tight in 2009 with lenders imposing strict standards for all types of loans [9] and unemployment continued to rise throughout the year.

The Federal Reserve Bank introduced a range of emergency measures, including discount rate reductions and credit easing that resulted in an increase in the monetary base of approximately 140 per cent over its pre-crisis level by the end of 2009 [10], and the government introduced a fiscal stimulus package that is estimated to total 4.8 per cent of GDP [11]. The Federal budget deficit rose sharply under the operation of the economy's automatic stabilisers, and by 2010 the public debt had risen from its 2007 level of 62 percent of GDP to over 90 per cent[3] which is projected to rise to 108 percent by 2014[3]. The country's total debt in 2008 was 290 per cent of GDP (made up of government debt 60 per cent, household debt 78 per cent and business debt 152 per cent) [12]. On August 10 2010, after a contentious debate, the Federal Reserve Board decided to maintain its $2.05 trillion stock of mortgage debt and U.S. Treasury holdings, in view of fears of a second downturn[13].

In December 2010 President Barack Obama agreed a compromise with the Republicans to prolong tax cuts, extend unemployment benefits and cut payroll tax by 2% next year. The US deficit is now projected to increase from 8.5% to 9.5% of GDP in 2011 and from 6.9% to 9.8% in 2012.

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Canada

2009 2010
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14] 0.5 -2.6 -1.8 -0.7 0.2 1.2 1.4 0.5 1.2
Unemployment (% of labour force)[15] 6.1 8.3 7.8 8.4 8.5 8.9 8.2 8.0 8.0
Consumer prices (% increase on the same period of the previous year)[7] 2.4 0.3 1.4 0.1 -0.8 1.0 0.4 0.3 -0.1 0.1

The Canadian mortgage market did not experience the surge in defaults that triggered the subprime mortgage crisis in the United States, and the subsequent financial crash of 2008 had little effect upon the Canadian financial system. Events in the United States nevertheless affected the rest of the Canadian economy. The economic growth rate faltered in the Autumn of 2007 as exports fell in response to falling demand from the United States, and the downturn developed into a sharp contraction, led by falling investment and household spending, in the last quarter of 2008. The government introduced fiscal stimulus measures amounting to 4 per cent of GDP spread over the three years 2008-10, and a modest recovery started in the second half of 2009.

Central and Southern America

GDP growth (%)
2007 2008 2009 2010e
Mexico 3.3 1.4 -7.1 3.5
Brazil 5.7 5.1 0.1 3.6
Argentina 8.7 6.8 -2.2 2.3

The Mexican economy suffered from a sharp fall in Mexican workers' remittances from abroad[16] and from the fall in the price of oil. In Brazil, GDP fell by 0.2 percent year-on-year in the first two quarters of the crisis period, but rebounded in the second and third quarter of 2009. In Argentina, GDP increased by 0.5 and 0.2 percent on an annualized basis in the second and third quarters of 2009[17].





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Europe

The United Kingdom

2010 2011
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14][5] -0.1 -5.0 1.3 2.2 0.4 1.2 0.8 -0.5 0.5 0.2
Unemployment (% of labour force)[15][5] 5.6 7.6 7.8 7.9 7.8 7.8 7.8 7.9
Consumer prices (% increase on the same period of the previous year)[7][5] 3.6 2.2 3.2 2.6 3.3 3.4 3.3 3.3
Savings ratio 1.4 6.3 6.0 3.5 5.0

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[18] and to the development of a comparatively vigorous housing boom[19], 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 [20], 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 [21], 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 upon the balance of payments was more than offset by a fall in exports.

The Bank of England introduced a range of emergency measures including discount rate reductions and quantitative easing that resulted in an increase in the monetary base of approximately 230 per cent over its pre-crisis level by the end of 2009 [10] A fiscal stimulus amounting to 1.5 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.

In 2008, the country's total debt was 469 per cent of GDP (made up of government debt 52 per cent, household debt 114 per cent and business debt 303 per cent)[12]. The possibility of household deleveraging was considered in 2010 to present a danger of hampering recovery[22] from the recession.

The United Kingdom entered the recession in 2007 with a public debt of 44 per cent of its GDP, which had risen to 62 per cent by 2010, about 30 per cent of which was held by overseas investors. In February 2010 its Parliament passed the Fiscal Responsibility Act[23] which imposed a duty on the Treasury to ensure that by the financial year ending 2014 public sector net borrowing as a percentage of GDP is at least halved from its level for the financial year ending 2010, and the budget of June 2010 introduced proposals that were expected to achieve that halving two years sooner[24].

A member of the Bank of England's Monetary Policy Committee has spoken of a "real danger" of a second downturn in 2011[25]. On 23 March 2011, the Moody's credit rating agency warned that "Slower growth combined with weaker-than-expected fiscal consolidation could cause the UK’s debt metrics to deteriorate to a point that would be inconsistent with an AAA rating."

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The Eurozone

2010 2011
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14][5] 0.4 -4.1 1.7 1.5 0.4 1.0 0.5 0.3 0.8 0.2
Unemployment (% of labour force)[15][5] 7.5 9.5 10.1 10.0 9.9 10.1 10.1
Consumer prices (% increase on the same period of the previous year)[7][5] 3.3 0.3 1.5 1.8

The recession had widely differing impacts upon the economies of members of the European Union's monetary union but all were subject to the monetary policy of the European Central Bank. The bank responded to the recession by reducing its discount rate in stages to a minimum of 1 per cent, and adopting a limited amount of quantitative easing, a policy that resulted in an increase in the monetary base of approximately 50 per cent over its pre-crisis level by the end of 2009[10]. The European Union's output loss between the second quarter of 2008 and the end of 2009 is estimated to have reached 5% of GDP by the end of 2009. Among the larger Eurozone countries, the 2009 contraction ranged from about 2% in France to 4½-5% in Germany, and Italy. However, business confidence began to improve during the second quarter of 2009[26] and a hesitant recovery in output began in the third quarter.

The Euro crisis
(Additional information is available in the article on the eurozone crisis)

With the return of economic growth, attention turned to fiscal policy. The EU's growth and stability pact required member governments to limit their budget deficits to 3 per cent of GDP and their public debt to 60 per cent of GDP, but there had been numerous breaches.

PIIGS debt (% of GDP)
Portugal    Italy     Ireland   Greece   Spain  
Public Debt, 2009 76.8 115.8 64.0 115.1 53.2
Public Debt, 2010 83.1 118.9 99.4 130.2 63.2

Few member governments were in compliance with those limits by the end of 2009 [27]. Twelve Member States had public debt ratios higher than 60% of GDP in 2009, including France (77.6%) and Germany.(60.9%)[28]. Particular concern developed in early 2010 concerning the fiscal sustainability of the economies of the "PIIGS" countries (Portugal, Ireland, Italy, Greece and Spain) following rating downgrades by the credit rating agencies.

In May 2010, a €500 billion European financial stabilisation mechanism was established[29], enabling member states in difficulties to get loans from the European Central Bank (subject to the adoption of measures to restore fiscal sustainability) and the Bank launched a securities market programme, designed to calm the bond market[30]. The June report of an IMF mission on Eurozone policy attributed the crisis to deficient governance of the euro area, and called for immediate further action[31]. By September 2010 it had become clear that confidence had not been restored. Ireland's 10-year sovereign spreads against Germany had risen to a record 357 basis points, compared with 145bp at the start of the year; Spain’s 10-year bonds were trading at 192bp above Germany's, compared with 57bp at the start of the year, and Portugese goverment bonds were trading at 333bp, compared with 67bp.[32]. However, an IMF Staff Position Note published in September suggested that the markets were overestimating the risk of defaults and that the fiscal adjustments that were needed were achievable[33]

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Germany

2010 2011
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14][5] 1.0 -4.7 3.7 2.2 0.6 2.3 0.7 0.0 1.3 0.1
Unemployment (% of labour force)[15][5] 7.3 7.5 7.3 6.7 7.3 7.0 6.7 6.7
Consumer prices (% increase on the same period of the previous year)[7][5] 2.8 0.2 1.1 1.8 0.8 1.1 1.2 1.5

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.


The government introduced a fiscal stimulus package that is estimated to total 3.4 per cent of GDP[11] 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 and raise the national debt from its 2007 level of 65 per cent of GDP to over 80 per cent by 2010[3]. The recovery in the second half of 2009 has been attributed by the OECD to the fiscal stimulus, expansionary monetary conditions, an upswing in world trade and restocking activities of companies[34] but in view of the substantial output gap that remained at the end of 2009 they estimate that the pre-crisis level of production will not be reached until 2013.

Germany entered the recession in 2007 with a national debt of 63 per cent of its GDP which is projected to rise to 101 percent by 2014[3]. In 2008, the country's total debt was 274 per cent of GDP (made up of government debt 69 per cent, household debt 66 per cent and business debt 138 per cent)[12]

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France

2010 2011
2007 2008 2009 2010   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14][5] 0.2 -2.6 1.6 1.6 0.2 0.7 0.4 0.6 0.9 0.0
Unemployment (% of labour force)[15][5] 7.6 9.5 9.6 9.5 9.9 9.9 9.7 9.8
Consumer prices (% increase on the same period of the previous year)[7][5] 3.2 0.7 1.7 1.6 1.3 1.6 1.5 1.5

The French economy suffered less from the recession than those of most of the other G7 countries. French banks were affected less than their counterparts in many other countries, primarily because they had diversified their activities and adopted more ,defensive prudential lending standards, and household indebtedness remained lower than in other countries. The measures taken by the government in October 2008 to boost the liquidity and solvency of the big banks were successsful in maintainng the functioning of the credit market [35].

The government introduced a fiscal stimulus package that is estimated to total 1.3 per cent of GDP [11] 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.

France entered the recession in 2007 with a national debt of 64 per cent of its GDP which is projected to rise to 96 percent by 2014[3]. In 2008, the country's total debt was 308 per cent of GDP (made up of government debt 73 per cent, household debt 110 per cent and business debt 125 per cent)[12]

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Italy

2010 2011
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14][5] -1.3 -5.0 1.1 1.1 0.4 0.5 0.2 0.1 0.1 0.3
Unemployment (% of labour force)[15][5] 6.7 7.8 8.4 8.3 8.4 8.5 8.2 8.7
Consumer prices (% increase on the same period of the previous year)[7][5] 3.5 0.8 1.4 1.8 1.3 1.4 1.6 1.8

Italian banks were less exposed to high-risk products than those of other large countries because of their conservative behaviour and their regulators' and supervisory caution, and there were no bank closures or rescues. [36]. The economy nevertheless suffered a relatively severe recession.

Italy entered the recession in 2007 with a national debt of 104 per cent of its GDP which is projected to rise to 129 percent by 2014[3]. In 2008, the country's total debt was 298 per cent of GDP (made up of government debt 117 per cent, household debt 81 per cent and business debt 303 per cent)[12]

A spread of Italian government bonds over German government bonds developed in the course of 2010 and rose to over 2½ per cent by mid-2011.


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Iceland

2009 2010
2007 2008 2009   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14] 5.6 1.7 -7.0 -0.6 -2.7 -5.4 -0.3 -1,2 -3.1 1.2 -1.6
Unemployment (% of labour force)[15] 2.3 3.0 7.2 7.2 6.9 7.3 7.7 7.3 6.8
Consumer prices (percent increase on the same period of the previous year) 5.1 12.7 17.1 11.9 11.1 8.6 7.4 7.1 4.4 2.8

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 [37], believed that its banking model was not viable). A few months later its banking system had collapsed[38], 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[39]. 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. In October 2009 an OECD economist reported that Iceland's economy was in the midst of a deep recession; the exchange rate had plunged; capital flows had been frozen; inflation was up; public debt had risen; social needs had increased; and that the unemployment insurance fund was been nearly depleted[40]. In November 2009 the Moodys credit rating agency downgraded Iceland's government bonds to its lowest investment grade. The government had introduced fiscal stimulus measures amounting to 9.4 per cent of GDP spread over the two years 2009-10, a loan was obtained from the International Monetary Fund and recovery was expected during 2011 [41].

In a June 2010 press release, the IMF effectively approved the Government's fiscal policy with the statement that "the planned 3 percent of GDP fiscal adjustment can deliver a primary surplus and a reduction in Iceland’s public debt, provided budget implementation stays on track in 2010"[42].

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Ireland

2010 2011
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14][5] -3.5 -7.6 -0.2 0.9 2.2 -1.2 0.5 -1.4 1.3
Unemployment (% of labour force)[15][5] 6.3 11.9 13.7 13.5 12.8 13.1 13.7 14.1
Consumer prices (percent increase on the same period of the previous year)[5] 3.1 1.7 -1.5 0.4 -3.4 -1.4 0.2 0.9

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[43][44]. In an attempt to restore confidence, the Irish government undertook to guarantee loans to the banks. 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 inflation rate fell to -3 per cent in September 2009. The government introduced fiscal stimulus measures amounting to 4.4 per cent of GDP spread over the three years 2008-10 which, combined with the effects of its automatic stabilisers is expected to raise the national debt to over 80 per cent of GDP from its 2007 level of 28 per cent[3]. Foreign investors became wary of the possibility 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 credit rating agency downgraded its rating for Ireland from AAA to AA+[45], 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 [46]. 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.[47][48].

The report of an IMF consultation published in July 2010 concluded that the governments "aggressive measures" had helped gain policy credibility and stabilize the economy but that further long-haul efforts with active risk management would be need to preserve policy credibility[49]. On August 24, 2010 the Standard and Poor's credit rating agency downgraded Ireland's debt for the 3rd time to AA- (following 3 downgrades by the Fitch agency and 2 by Moody's).

Ireland's economy suffered a second downturn in the second quarter of 2010 and the Government's financial position continued to deteriorate. In September 2010, its CDS spread reached a record 5 per cent. On the 22nd of November 2010 the government applied for financial assistance from the EU and the IMF[50] and on the 28th of Nonember, the Government announced the terms of the loan[51].

The National Recovery Plan of December 2010 aims to consolidate public finances by 3.8% of GDP in 2011. Income tax bands will fall by 10%, and there are planned reductions in both current and capital expenditure.

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Russia

GDP growth (%)
2007 2008 2009 2010e
8.1 5.6 -7.9 4.3

A fall in theoil price combined with the collapse in world trade and a withrawal of international credit had a devastating effect upon the Russian economy in the first half of 2009, and its GDP fell by about 10 percent [52]. That 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[13]. The budget balance changed from a surplus of 4¼ per cent of GDP in 2008 to a deficit of 6¼ per cent in 2009 which the Government monetised from reserves, leaving its public debt at the internationally low level of 11 per cent of GDP [53][54].

Russia's recession ended in the first quarter of 2010 with a GDP growth at a yearly rate od 3.3 per cent, followed in the second quarter by growth at a yearly rate of 5.2 per cent. Taking account of earlier declines, this left economic activity at well below pre-crisis levels.

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The Baltic States

GDP growth (%)
2007 2008 2009 2010e
Estonia 7.2 -3.6 -14.7 -1.5
Lithuania 9.8 2.8 -14.8 3.3
Latvia 10.0 -4.6 -18.0 -4.0


The fastest-growing economies in the European Union in 2006 became its three fastest-contracting economies in 2009. Years of boom were followed by falls in GDP averaging about 1½ per cent in 2008 and about 16 per cent in 2009. An International Monetary Fund report on Estonia noted that investment already started to slow in mid-2007, along with a bursting of the property bubble, when the two main banks tightened lending conditions. The collapse of global external financing and foreign trade in the Lehman Brothers bankruptcy aftermath exacerbated the downturn. Deflation and wage declines were projected to persist through 2010 [55], but growth rates are expected to average between 2 and 5 per cent over the period 2010-14[56] [57].

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Greece

2010 2011
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14] 1.3 -2.3 -4.2 -3.0 -0.6 -1.7 -1.6 -2.1 0.2
Unemployment (% of labour force)[15][5] 7.7 9.5 12.5 15.0 10.2 11.0 12.9
Consumer prices (% change on the same period of the preceding year)[5] 4.2 1.3 4.6 2.2 3.0 5.2 5.5

When Greece joined the Eurozone in 2001, it was less prosperous than the other members[58], but its GDP grew more rapidly over the next seven years and fell less rapidly in the course of 2009. By the end of 2009, its unemployment rate had nevertheless risen in line with the European average and it was still suffering higher levels of poverty [59], and its national debt had risen by about 25 per cent above its pre-crisis level of 100 per cent of GDP[3]. Concern about the sustainability of the goverment's fiscal policy had led the credit rating agencies to downgrade the government's debt in January 2010, [60], and several times after that; and by early 2010 the cost of insuring against default by the Greek government rose after Moody’s Investors Service said the country’s economy was facing a “slow death” from deteriorating finances[61]. (It has been suggested that the country's deceptive conduct[62] and its default record[63] were contributory factors.) The investor panic continued until, in April 2010, it was announced that members of the Eurozone were prepared to offer the government a conditional of €30 billion at lower interest rates than the current market rate (then over 7 per cent) [64] [65]. In return, the Government was required to carry out a programme of fiscal contraction that was expected to drive its economy into a deep recession. The statement did not have the expected stabilising effect, but was followed by increases in risk premiums and further credit rating downgrades with Standard and Poor estimating that investors would recover only 30 to 50 per cent of their investments if the Greek government defaults. A further agreement on May 2[66] to lend the Greek government €110 billion also failed to reassure investors[67]. Public spending cut-backs have sparked widespread demonstrations. An August 2010 review [68] applauded the government's measures, but investors continued to be unwilling to buy its bonds. Fiscal tightening in 2010 is expected to amount to 7.5 per cent of GDP.

The economy remained in recession throughout 2010, and the CDS spread on government bonds widened to over 8 per cent in September. On March 7 2011, Moody's downgraded Greece's government bond ratings to B1 from Ba1, and assigned a negative outlook to the rating.

Spain

2010 2011
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14][5] 0.9 -3.7 -0.2 0.7 0.1 0.3 0.0 0.2 0.3 0.2
Unemployment (% of labour force)[15][5] 11.3 18.0 20.1 20.2 19.4 20.1 20.5 20.4
Consumer prices (% increase on the same period of the previous year)[5] 4.1 -0.2 1.7 1.5 1.1 1.6 2.0 2.6

The recession in Spain was shallower but more protracted than the European average, and the recovery, which started in the first quarter of 2010, has been described as "weak and fragile"[69]. Spain's unemployment rate was among the highest in Europe, reaching 19 per cent in March 2010. A major contributory factor was the bursting of a vigorous housing bubble, as a result of which the construction sector crashed, and the banking sector suffered a downturn despite the fact that it had avoided the acquisition of toxic debt. Another major factor was deleveraging of a deeply indebted household sector. The Government responded with a major fiscal stimulus that, together with the effects of the country's automatic stabilisers resulted in the largest budget deficit in the European Union - although its public debt as a percentage of GDP was among the smallest. In 2010, the bond market developed a debt aversion against Spain following the Greek crisis, the Standard and Poor credit rating agency downgraded its credit rating from AA+ to AA on 28 April 2010[70], and the sovereign spread over Germany's 10-year bonds rose to 164 basis points in early May 2010.

Portugal

2010 2011
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14][5] 0.0 -2.6 1.3 -1.0 1.1 0.2 0.3 -0.6 -0.6 0.0
Unemployment (% of labour force)[15][5] 7.7 9.6 10.1 11.1 10.5 11.1 11.1 10.9
Consumer prices (% increase on the same period of the previous year)[7][5] 2.7 -0.0 1.4 2.3 0.3 1.0 1.9 2.4

The Portugese economy has long depended upon agricultural exports, tourism, and income from its nationals working abroad - all three of which were hit by the recession. It went into downturn earlier than the European average and emerged no sooner. The Government responded with a fiscal stimulus equivalent to about 1¼ per cent of GDP. According to its statistics institute, the Portugese economy grew by 0.3 per cent in the second quarter of 2009 after contracting in the previous three quarters, leaving at 3.7 per cent lower than a year previously. The ensuing growth rate has been low and the unemployment rate has remained above 10 per cent. Portugal's public debt reached 77 per cent of GDP in 2009 and was expected to expand further in 2010. [71]. Deficit-reducing measures were put in hand and were met with strong trade union resistance. Unease following downgrades of Greek government bonds caused increasing debt aversion towards Portugal, and Standard and Poor downgraded its credit rating from A+ to A- (4 grades below the top) on 27th April 2010[72]. On 12th January 2011 a €599m issue of bonds maturing in 2020 at a yield of 6.716 per cent was oversubscribed[73], but 6th April the Prime Minister announced that he had applied fr financial assistance from the European Union [74].

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Asia

Japan

2009 2010
2008 2009 2010 2011   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14][5] -1.2 -5.2 3.5 1.3 -4.2 1.7 0.1 1.0 1.6 0.4 0.9
Unemployment (% of labour force)[15][5] 4.0 5.1 5.1 4.9 4.3 5.1 5.4 5.7 4.9 5.2 5.1 5.7
Consumer prices (% increase on the same period of the previous year)[7][5] 1.4 -1.4 -0.9 -0,7 -0.1 -1.1 -2.2 -2.0 -1.2 -0.9 -0.8 0.1

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 [75] the government introduced fiscal stimulus measures amounting to 2 per cent of GDP . Combined with the effect of the country's automatic stabilisers, its national debt (the majority of which was held by domestic investors) is expected to rise to over 200 per cent of GDP from its already massive pre-crisis level of 167 per cent[3].

Japan entered the recession in 2007 with a national debt of 188 per cent of its GDP which is projected to rise to 246 percent by 2014[3]. About 95 per cent of the national debt is held by domestic investors. In 2008, the country's total debt was 459 per cent of GDP (made up of government debt 188 per cent, household debt 96 per cent and business debt 175 per cent)[12]

On 27 January 2011, Standard and Poor's downgraded Japan's long-term sovereign credit ratings to 'AA-' from 'AA'.long-term sovereign credit ratings to 'AA-' from 'AA[76]


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China

GDP growth (%)[14]
2007 2008 2009 2010e
14.2 9.6 9.1 10.5

In November 2008, the Chinese Government announced a major fiscal stimulus (amounting to 4.4 per cent of GDP) and the adoption of a highly expansionary monetary policy, which partially offset the effect of the collapse in world trade upon China's export sales, and limited the resulting fall in output growth. Export growth resumed in the course of 2009 - rising to above pre-crisis levels in 2010. Output growth began to pick up in the second quarter of 2009 and continued into 2010, supported by an expansionary fiscal stance[77], and there were signs of a developing property boom[78].

India

GDP growth (%)[15]
2007/08 2008/09 2009/10 2010/11e
9.0 6.7 6.7 8.0

A reversal of India's capital inflows started in January 2008 through a massive disinvestment by foreign institutional investors (a net disinvestment of $13.3 billion from January 2008 to February 2009 following a net investment of $17.7 billion during 2007). That was followed by a massive slowdown in external commercial borrowing by India’s companies, trade credit and banking inflows from April 2008 [79]. There was a progressive reduction in manufacturing output in the course of 2009 following a fall in overseas demand for India's exports[80]. Output growth resumed in March 2009, was back on trend by June and is expected to continue at its long-term trend rate through 2010 and beyond[81]. Capital inflows have resumed and are rising but inflation is also rising and IMF economists consider India's fiscal position to be one of the weakest among major emerging markets.

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Australia

2009 2010
2007 2008 2009   Q1    Q2    Q3    Q4    Q1    Q2    Q3    Q4 
GDP (% change on previous period)[14] 4.2 2.3 0.8 0.8 0.7 0.3 1.0 0.5
Unemployment (% of labour force)[15] 4.4 4.2 5.6 5.3 5.7 5.8 5.6

The government introduced fiscal stimulus measures amounting to 4.6 per cent of GDP spread over the three years 2008-10. In the course of 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%

Africa

South Africa

GDP growth (%)[16]
2007 2008 2009e 2010e
5.1 3.1 -2.1 1.9

The South African economy was growing strongly in 2006 but, in response to the inflationary threat from growing food prices, the Government then adopted a programme of monetary restraint. Economic growth was already slowing when the economy was hit by the financial crisis of late 2008. There was a sudden outflow of international funds, exports fell in response to the falls in international trade and in commodity prices, and the economy went into recession. Output fell by 1.8 percent in the fourth quarter of 2008 and by a further 6.4 percent in the first quarter of 2009. Manufacturing and mining output contracted dramatically, and the unemployment rate rose to 23 per cent. [82]

Other developing countries

The other sub-Sahara African countries were largely unaffected by the recession with the economies of all except Eritrea estimated to have grown by more than 4 per cent between 2009 and 2010[83]. Most of the developing countries experienced a slowdown in economic growth, however. The worst affected were in Latin America and the Caribbean, and in Europe and Central Asia; and none of the other developing countries suffered an actual fall in output. There was weak recovery of output in the course of 2009, but there were still output gaps of around 3 per cent of GDP at the end of 2009, suggesting that high levels of unemployment might continue. perhaps for years [17]. Experience varied among the developing countries, however. Economists at the International Monetary Fund found that the worst affected of the developing countries had been those with highly leveraged domestic financial systems and rapid credit growth. Countries exporting more advanced manufacturing goods had suffered more than those exporting food, and countries with pegged exchange rates had fared less well than those with flexible exchange rates[84].

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References

  1. ↑ 1.0 1.1 Global Economic Prospects, World Bank, July 2010
  2. ↑ Rounded numbers from the chart on The Economist of 28th January 2010[1]
  3. ↑ 3.00 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 The State of Public Finances, Cross-Country Fiscal Monitor: IMF Staff Position Note, November 2009 Cite error: Invalid <ref> tag; name "debt" defined multiple times with different content
  4. ↑ News Release, Bureau of Economic Affairs, March 2010
  5. ↑ 5.00 5.01 5.02 5.03 5.04 5.05 5.06 5.07 5.08 5.09 5.10 5.11 5.12 5.13 5.14 5.15 5.16 5.17 5.18 5.19 5.20 5.21 5.22 5.23 5.24 5.25 5.26 5.27 5.28 5.29 5.30 European Economic Forecast, Autumn 2010
  6. ↑ seasonally adjusted Bureau of Labor Statistics data[2]
  7. ↑ 7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 mid-quarter figures [3]
  8. ↑ Based on Treasury Secretary Tim Geithner's statement to the Senate Finance Committee March 4 2009
  9. ↑ Federal Reserve "Beige Book", March 2009
  10. ↑ 10.0 10.1 10.2 [4] Minegishi and Cournède:, Monetary Policy Responses to the Crisis and Exit Strategies, Economics Department Working Paper No. 753, OECD, Febtuary 2010]
  11. ↑ 11.0 11.1 11.2 The Size of the Fiscal Expansion: An Analysis for the Largest Countries, International Monetary Fund, February 2009
  12. ↑ 12.0 12.1 12.2 12.3 12.4 12.5 Charles Roxburgh et al: Debt and deleveraging: The global credit bubble and its economic consequences, The McKinsey Global Institute, January 2010
  13. ↑ Jon Hilsenrath: Fed Split on Move to Bolster Sluggish Economy, Wall Street Journal, August 24, 2010]
  14. ↑ 14.00 14.01 14.02 14.03 14.04 14.05 14.06 14.07 14.08 14.09 14.10 14.11 14.12 OECD StatExtracts at[5] & [6]
  15. ↑ 15.00 15.01 15.02 15.03 15.04 15.05 15.06 15.07 15.08 15.09 15.10 15.11 15.12 seasonally adjusted [7]
  16. ↑ Mexican economy hard hit by drop in U.S. remittances, World Focus, February 2010
  17. ↑ 17.0 17.1 Prospects for Developing Economies, Global Economic Prospects Chapter1, World Bank, 21 January 2010
  18. ↑ Philip Davis: Financial Stability in the United Kingdom: Banking on Prudence, OECD Economics, Department Working Papers, No. 717, OECD Publishing, July 2009
  19. ↑ Robert Kuenzel and Birgitte Bjørnbak: The UK Housing Market: Anatomy of a house price boom, EcFin Country Focus, October 2008
  20. ↑ Rush on Northern Rock Continues, BBC News 17 September 2007
  21. ↑ Rescue Plan for UK Banks Unveiled, BBC News 8 October 2008
  22. ↑ Susan Land and Charles Roxburgh:Debt and Deleveraging, World Economics, April-June 2010 [8]
  23. ↑ Fiscal Responsibility Act, Stationery Office, February 2010
  24. ↑ Budget Forecast, June 2010, Office for Budget Responsibility, 2010
  25. ↑ Transcript of Dr Martin Weale’s interview with The Times, 23 August 2010
  26. ↑ Business climate indicator and industrial production for the euro area, European Commission, July 2010]
  27. ↑ Commission assesses stability and convergence programmes of fourteen EU Member States, European Commission, 17 March 2010]
  28. ↑ Provision of deficit and debt data for 2009 - first notification, Eurostat April 2010
  29. ↑ European stabilisation mechanism adopted, European Council, May 2010
  30. ↑ ECB decides on measures to address severe tensions in financial markets, European Central Bank press release, 10 May 2010
  31. ↑ Concluding Statement of the IMF Mission on Euro-Area Policies, International Monetary Fund, June 7, 2010]
  32. ↑ David Oakley: Germany’s strength weakens others, Financial Times, August 31 2010]
  33. ↑ Carlo Cottarelli, Lorenzo Forni, Jan Gottschalk, and Paolo Mauro: Default in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely, Staff Position Note SPN/10/12, International Monetary Fund, September 1, 2010]
  34. ↑ Economic Survey of Germany, OECD, March 2010
  35. ↑ Economic Survey of France, OECD, April 2009
  36. ↑ Economic Survey of Italy, OECD, June 2009
  37. ↑ Willem Buiter and Anne SIbert: The Icelandic Banking Crisis and What To Do About It, Policy Insight No 26, Centre for Economic Policy Research, October 2008[9]
  38. ↑ Thorvaldur Gylfason Iceland’s special investigation: The plot thickens, Vox, 30 April 2010
  39. ↑ Economic Survey of Iceland, OECD, September 2009
  40. ↑ Andrea De Michelis: Iceland: Challenging Times For Monetary And Fiscal Policies, Economics Department Working Paper No. 726, OECD October 2009
  41. ↑ Country Report No. 08/362, International Monetary Fund, November 2008
  42. ↑ Statement by the IMF Mission to Iceland, International Monetary Fund, June 28, 2010
  43. ↑ The Tiger Tamed, The Economist, November 2008
  44. ↑ The Party is Definitely Over, The Economist March 19 2009
  45. ↑ Stacy-Marie Ishmael: S&P strips Ireland of its triple-A rating, FT-Alphaville, March 30 2009
  46. ↑ Budget Statement, Department of Finance, April 7, 2009
  47. ↑ Department of Finance, Ireland. Minister for Finance, Mr Brian Lenihan, TD, announces appointment of interim Managing Director of the National Asset Management Agency (html). Retrieved on 2009-05-12.
  48. ↑ Money Guide Ireland. NAMA - National Asset Management Agency. Retrieved on 2009-05-12.
  49. ↑ Ireland: 2010 Article IV Consultation, International Monetary Fund, July 2010
  50. ↑ Full text of the Government statement on its application for financial aid from the EU and IMF, Irish Times, 22 November 2010
  51. ↑ Announcement of joint EU - IMF Programme for Ireland, Government announcement, 28 November 2010
  52. ↑ Economic Survey of Russia 2009, OECD July 2009
  53. ↑ IMF Executive Board Concludes 2010 Article IV Consultation with Russian Federation, August 2, 2010
  54. ↑ Russian Federation: 2010 Article IV Consultation. International Monetary Fund, July 2010
  55. ↑ Republic of Estonia: Staff Report for the 2009 Article IV Consultation, IMF Country Report No. 10/4, January 2010[10]
  56. ↑ Economic policy challenges in the Baltics, Occasional Papers No. 58, European Commission, February 2010
  57. ↑ Anders Åslund: The Last Shall Be the First: The East European Financial Crisis, Peterson Institute, forthcoming
  58. ↑ Country comparison GDP per capita (PPP), Index Mundi
  59. ↑ "Living conditions in 2008", Eurostat Newsrelease Januaty 2010
  60. ↑ Greece’s Sovereign Credit Rating Cut to A- by S&P, Bloomberg, January 14 2010
  61. ↑ Greek Default Risk Surges to Record Amid "Slow Death" Concern, Bloomberg, 13 January 2010
  62. ↑ Report on Greek Government Deficit and Debt Statistics, European Commission, January 2019
  63. ↑ Kenneth Rogoff: Can Greece Avoid the Lion?, Project Syndicate February 2010
  64. ↑ "Statement by the Heads of State and Governments of the Euro Area, 2 March 2010
  65. ↑ Statement on the support to Greece by Euro area Members States, Europa, 11 April 2010
  66. ↑ Statement by the Eurogroup, 2 May 2010
  67. ↑ "The Greek Debt Crisis", Financial Times, May 2010
  68. ↑ Statement by the EC, ECB, and IMF on the First Review Mission to Greece, August 5, 2010
  69. ↑ Country Report: Spain, International Monetary Fund, July 2010
  70. ↑ S&P downgrades Spain to AA, Financial Times Alphaville 28 April 2010
  71. ↑ Country Report on Portugal, International Monetary Fund, January 2010
  72. ↑ S&P cuts Portugal’s ratings two notches to A- , Financial Times Alphaville 27 April 2010
  73. ↑ Dave Shellock Portuguese bond sale boosts confidence, Financial Times, January 12 2011
  74. ↑ Portugal PM Socrates says requests EU aid, Reuters 6 April 2011
  75. ↑ Martin Sommer: Why Has Japan Been Hit So Hard by the Global Recession?, Staff Note SPN/09/05, International Monetary Fund, March 18, 2009
  76. ↑ Ratings On Japan Lowered To 'AA-'; Outlook StableRatings On Japan Lowered To 'AA-'; Outlook Stable, s&P 27/01/2011
  77. ↑ China Quartery Update, World Bank, June 2010
  78. ↑ China Quarterly Update, World Bank, March 2010
  79. ↑ Working Paper No. 241 Mathew Joseph, Karan Singh, Pankaj Vashisht Dony Alex, Alamuru Soumya, Ritika Tewari, and Ritwik Banerjee: The State of the Indian Economy 2009-10, Indian Council for Research on International Relations, October 2009[11]
  80. ↑ Economic Survey 2008-09, Ministry of Finance, Government of India, January 2010
  81. ↑ Country Report: India, March 2010
  82. ↑ Country Report: South Africa, International Monetary Fund, September 2009
  83. ↑ Economist October 30th 2010, page 114
  84. ↑ Pelin Berkmen, Gaston Gelos, Robert Rennhack, and James P. Walsh: The Global Financial Crisis: Explaining Cross-Country Differences in the Output Impact, IMF Working Paper no WP/09/280, December 2009
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