Cross-posted at Reports from the Economic Front.
There is big trouble brewing in Europe. John Ross, in his blog Key Trends in the World Economy, highlights this brewing crisis in a series of charts, some of which I repost below.
This first chart shows the extent of the recovery from the recent economic crisis in the U.S., the EU, and Japan. While the U.S. GDP has finally regained its past business cycle peak, the same cannot be said for Europe (or Japan). As of the 3rd quarter 2011, EU GDP was still 1.7% below its previous business cycle peak. The Eurozone was 1.9% below.
Recent GDP estimates for the 4th quarter show European GDP once again contracting, which strongly suggests that the region is headed back into recession without having regained its previous business cycle peak. This development implies that Europe faces serious stagnationist pressures.
This chart looks at the growth record for the 5 largest European economies. Germany has regained its previous GDP peak. France is making progress toward that end. These two countries account for 36.2% of European GDP. However, things are quite different for the UK, Italy, and Spain. These three countries account for 34.7% of European GDP and not only do they each remain far below their respective previous GDP peaks, their economies are once again heading downward.
The third chart highlights the economic performance of the three countries which have received the most media attention because of fears that their governments will be unable to repay their respective debts. They are clearly in trouble, adding to the downward pressure on European GDP. However, despite all the attention paid to them, their combined economies are only one-eighth the size of the combined economies of the UK, Italy and Spain.
The next two charts highlight the fact that economic trends are also dire throughout much of Eastern Europe.
The take-away is that European economic problems are not limited to a few smaller countries. Some of the largest are also performing poorly and apparently headed back into recession without ever having regained their past business cycle peaks. It is hard to see Europe escaping recession. And it is hard to see the U.S., Asia, and Africa escaping the consequences.
Comments 21
gasstationwithoutpumps — February 15, 2012
If the previous peak was a bubble, then recovery to the previous peak is not a reasonable expectation. Perhaps a different comparison point should have been taken, like the middle of the previous cycle.
Anonymous — February 15, 2012
Can someone explain what the X-axis is supposed to represent?
Elena — February 15, 2012
* Note that Spain has been suffering a housing crisis since around '08 that has nearly destroyed the construction sector and sent even more people to unemployment. Nowadays housing prices are still falling and pretty much no new houses are being built, with little hope of the market stabilizing. Spain has in fact suffered two crisis at the same time, the global financial one and the homegrown housing bubble collapse.
Serval — February 15, 2012
Dear Sociology PhDs,Please stop contributing to economists' prevailing myth that GDP is in any way an accurate measure of economic well-being. You know better. The aggregate of private consumption, private investment, government spending and the difference between imports and exports i.e., GDP, does not take into consideration the way wealth is created or distributed.
Let me elaborate by means of an example: Is it the case that the U.S. is recovering faster than Europe or is it the case that within the last 4 years the U.S. upper class has generated so much wealth that it "boosted" the U.S. GDP? GDP in and of itself does not answer this question.
Is it the case that the U.S. is recovering faster than Europe or is it the case that, due to comparatively less regulation, financial investment in the U.S. within the last 4 years has "boosted" the U.S. GDP? GDP in and of itself does not answer this question.
If the latter were true in either examples, then "economic recovery" assumes a new meaning. In other words, for what people and for what classes does this so-called "economic recovery" refer to?
Ricky — February 16, 2012
Looks like Europe has finally run out of other people's money, just like Margaret Thatcher warned.
anon — February 17, 2012
As a small aside: The last two statistics about the dire situation in the rest of Europe can be interpreted another way, can they not? The 'dire' situation in Estonia & Co shows nothing but a continued updraft in GDP for two out of three countries. As for the second one: Here recovery is even slower, but nonetheless constant. As an aside: These tables show nothing of the GDP pre 'crisis', so while we might surmide that all these nations were indeed caught in an economical updraft, it is an assumption that needs to be made openly.