How Bad Has It Been? 2008-2013 in Historical Perspective
The end of a year is a good time to take stock. For the first time since 2007, prospects for the UK for the forthcoming year look unequivocally good. But looking back, just how bad have the last few years been across the developed world as a whole? And how do they compare with previous recessions in a historical context? To keep you out of suspense, the answer to both these questions is ‘pretty bad’. In one key respect, it has been awful.
A good piece of news is that, in one sense, the length of the recession in 2008/09 was nothing remarkable. Using the data on GDP on the OECD’s website, the evidence from 20 developed countries across the world shows that during the first half of 2008, output had begun to fall, albeit slowly. This accelerated sharply following the collapse of Lehman’s in September of that year. The only countries to escape a recession at all are Australia and Poland.
By the end of 2009, GDP had begun to increase again across the globe. So on a widely used definition of a recession in economics, it was over. It had lasted a maximum of two years. Looking at all recessions since the late 19th century, this was entirely in line with experience. Ninety per cent of all recessions last for only one or two years.
The size of the recession, in contrast, was rather brutal. In the Euro zone, for example, from peak to trough the fall in GDP was over 6 per cent. In the OECD as a whole, it was 5 per cent. Historically, only a quarter of all recessions exhibit a fall in output of 5 per cent or more. In the Great Recession of the 1930s, in a number of economies, including America and Germany, GDP dropped by over 20 per cent. So whilst not as devastating as the 1930s, this time around, the fall in output was a big one.
The really bad aspect of the recent recession is the length of time it has taken for GDP to regain its previous peak level, before the crash. Historically, excluding the years of the world wars, only 20 per cent of all recessions last more than two years, using this definition rather than the conventional one, where it ends once output stops falling. Just 13 per cent persist for more than three years, and only 6 per cent for more than five. The all-time record, as it were, is the 10 years it took the US to regain its 1929 level of GDP.
America and Canada regained the previous peak level of GDP after some three years. The same is true of Germany and many in its immediate zone of influence, Austria, Belgium, Netherlands, Sweden and Switzerland. Even in these countries, the recession was long. But in 9 out of the 20 countries, output remains below its peak six years afterwards. The UK should get back next year, but the prospects for Italy, Spain, and Portugal look dire.
As published in City AM on Wednesday 18th December 2013