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We are now beginning to see some signs of economic recovery, but growth in the United States and other advanced countries will be slow well into 2010. There has been a flurry of policies, proposed reforms, and fiscal and monetary actions in an attempt to put the economy back on stable ground and quell the financial crisis and the deepest recession since the Great Depression. But debate continues over whether we have seen the bottom, or what type of recovery we can expect.
You may have noticed that questions about the strength of the recovery have been summed up in the press in terms of a kind of alphabet soup. The best outcome would have a “V” shape, meaning a brisk rebound from the bottom. But this outcome is far from certain.
The $787 billion stimulus package, introduced in the first quarter of this year when the U.S. Gross Domestic Product (GDP) was falling at a rate of 5.5 percent and the rate of unemployment was 7.2 percent, seems to have gained some traction. Together with the highly expansionary monetary and other policies, it prevented the U.S. economy from falling into a depression reminiscent of 1929 but it did so at a huge cost to the American people, sharply increasing U.S. debt, in particular.
The U.S. economy started growing in the third quarter again—but slowly. Growth appeared to resume at some levels in the second quarter in France, Germany, and Japan, but it is still likely to remain weak. China and India are growing only slightly less rapidly than in 2008, while most other emerging markets have either resumed growth or are expected to demonstrate growth soon.
But unemployment is still a big concern. In the U.S., the economy has lost nearly seven million jobs since the beginning of the crisis and would likely need nine million jobs to reach full employment (an additional two million workers have entered the labor force during the past two years). As a lagging indicator, the rate of unemployment in the U.S., is now touching 10.2 percent. Simulations indicate that without the stimulus package, the number of unemployed would be approximately one million higher than current levels.
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This article is from the November 16, 2009 issue of Research Reports.
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