The crisis in perspective

Given the panic in the markets at present it is worth putting the current crisis in perspective. The only significant developed country currently in technical recession – defined as two consecutive quarters of falling output – is Ireland. Denmark was in recession but has recently started to grow again.

This is not to say that the textbook definition of a recession is perfect or that things cannot get worse. It is likely that both the eurozone and Japan will soon be in recession. But what is happening is that growth in many of the developed countries has fallen to about zero rather than there being a sharp drop in output. America is doing relatively well with GDP growth at an annual rate of 2.8% in the second quarter of 2008, although it did suffer a 0.2% fall in the final quarter of 2007.

In contrast, it is worth remembering that America’s GDP fell by 30% and industrial output fell by 47% during the Great Depression of the 1930s. Even in the recession of 1981-2 America’s output fell by 2%.