January 28, 2021

Off the Charts: In the Developed World, Economic Growth Contracts

The Organization for Economic Cooperation and Development, a group of 34 countries, said this week that the combined gross domestic product of its members declined at an annual rate of 0.6 percent in the final three months of 2012. It was a sign of just how far the global economy has weakened since 2010, when it appeared that the recovery was gathering strength.

The estimate was preliminary, since not all countries have released figures for the quarter and those that have will be revising them. The United States, which reported a small decline of 0.1 percent in the quarter, is expected to revise that to show a small gain when it reports new figures next Thursday.

It is unusual for downturns to be so widespread that they produce declines in the combined economies of the O.E.C.D. countries, which include all the major developed nations. Since 1962, when the O.E.C.D. statistics were first released, there have been only 13 quarters when that happened. The first three were in 1974 and 1975, during the worldwide recession brought on by the shock of soaring oil prices. There were four more in the early 1980s, during the double-dip American recession, one in 2001 and four in 2008 and 2009, during the credit crisis.

On Friday, the European Commission issued a glum forecast, saying the 27 countries in the European Union would see economic growth this year of just 0.1 percent, while the euro zone economies would shrink by 0.3 percent. If the O.E.C.D. estimates are correct, each of those forecasts would represent an improvement from 2012. During the four quarters of 2012, the O.E.C.D. estimated, the economies of the entire European Union declined by 0.6 percent, while the euro zone economies were down 0.9 percent.

The accompanying charts show the contribution from each of three sectors to the economies of the O.E.C.D. and four major parts of it — the United States, the euro zone, Britain and Japan — since 2006. Those sectors are private consumption, government consumption and gross investment. The charts show movements in each area over 12-month periods ending in the quarter shown.

The recent weakness is unusual in that there has been no countercyclical support from governments in many of the countries when the economy weakened. The euro zone never had a 12-month period when all three sectors shown were negative — until the periods ending in the first three quarters of 2012. (Fourth-quarter numbers are not yet available for the sectors.)

The United States economy has been doing better than many others over the last year, and the charts show why. A major reason is that fixed capital investment is still rising at a decent clip in this country — measured by comparing the fourth quarter of 2012 to the same quarter of the previous year — while it is down in Japan, Britain and the euro zone.

That gain is caused entirely by the private sector, which may have benefited from a banking system that did a better job of recapitalizing in 2010 than banks in Europe did, and thus is able to finance more projects.

Government investment in the United States has been declining for more than two years.

Historically, it has been very unusual for government consumption to decline, but that has become common in many countries, including the United States. During the first decade of this century, there was not a single quarter where such consumption was lower in the United States or the euro zone than it had been a year earlier. But since then, that has become the norm, not the exception, in both regions. In the United States, federal, state and local government budgets have been squeezed, while in Europe, austerity has become the byword in many countries.

Interestingly, while the British government has proclaimed a policy of austerity, government consumption over the last year has grown faster than private consumption while capital investment has fallen.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/02/23/business/in-the-developed-world-economic-growth-contracts.html?partner=rss&emc=rss

Speak Your Mind