Europe in recession

The Business Cycle Dating Committee of the Centre for Economic Policy Research (the European counterpart of the U.S. NBER) last week
issued a declaration that Europe entered a new recession a year ago, dating the business cycle peak at 2011:Q3.

Euro area real GDP, 2009:Q1 -2012:Q2 (normalized by 2011:Q3 = 100). Source:

Interestingly, although Europe had been in the expansion phase over 2009:Q3-2011:Q4, real GDP still had not yet returned to its 2008:Q1 peak before the current recession began.

Euro area real GDP, 1995:Q1 -2012:Q2 (normalized by 2011:Q3 = 100). Source:

The CEPR announcement applies to Europe overall, and there are important differences across countries. Output has been falling in Italy and Spain but is still growing in Germany.

Real GDP for selected individual countries,
2010:Q2 -2012:Q2 (normalized by 2011:Q3 = 100). Source:

This marks the first recession in CEPR’s business cycle chronology going back to 1970 in which Europe went into recession without the United States also being in a downturn.

Let’s hope

we’ll still be saying that at the end of 2013.


17 thoughts on “Europe in recession

  1. Bruce Carman

    In terms of real US private GDP per capita, the US has never, in fact, “recovered” from the slow-motion depression that started in ’00-’01, as in the case of the US in the 1830s, 1880s, 1930s, and Japan after ’97-’98 (the onset of Japan’s debt-deflationary regime as began in the US in ’08).
    US real GDP per capita since ’00 has decelerated from 2.1% to within a margin or error of 0%.
    The average trend rate of real US GDP growth since ’07-’08 is effectively 0%, whereas real GDP per capita is negative. This has occurred despite the US gov’t running cumulative deficits equivalent to more than 50% of private GDP and 100% of private wages and salaries.
    Moreover, since ’00, the US has cumulatively lost real GDP growth of nearly 20%, which is where Japan was in ’00. Japan since ’90 has lost cumulative real GDP growth of more than 40%, a trend trajectory the US is well on our way to replicating by the end of the decade.
    To claim that the US is not following Japan and the EU is to ignore the underlying structural drag effects from debt/GDP, demographics, Peak Oil, and global population/ecological overshoot.
    Keynesians, supply-siders, Monetarists, socialists, communists, corporate-statists, and fascists have no remedies for the maladies resulting from global ecological, demographic, and exergetic drag effects we face.

  2. jonathan

    You should print the chart that shows investment, GDP, employment and private consumption. Big point: if you take Q32011, which is set to 100, private consumption is a little below 99, GDP and employment are about 99.5 and investment is below 97. A freefall in investment.

  3. B Turnbull

    Why is per capita GDP is so low, given that we have ZIPR for many years, trillions of freshly minted digital dollars, health care availability and inflation are to be taken care of thanks to the ACA, TBTF banks are reined in thanks to Dodd-Frank, and so on and so forth, among many other recent improvements?

    And why is Europe not doing very well? They don’t even have to spend that much money on military and defence, unlike USA.

    Oh well, at least US stock market is going up and up and up.

    Also, people with equity and good jobs are able to refinance their houses at an almost negative real interest rate, courtesy of other tax-payers and the Federal Reserve. Some rich enterprising folks are even able to leverage such low interest rate to buy up a bunch of houses and rent it at a nice profit. With any luck another housing boom may be around the corner. As before, it shall usher a period of sustainable growth and deliver lower unemployment.

    We shall hope, believe and march forward….

  4. The Rage

    Carman you gotta to be kidding me, you don’t get this system at all do you?
    For one thing, so the government is running budget deficits, it is running deficits DUE to the slump which restricted tax revenue while keeping demand steady into a historically moderate recession. Considering we are past Boomer peak spending and automation, no surprise GDP per capita hasn’t recovered to that “trend”.
    Notice that the current system does not require high GDP per capita to survive, but the “engine” of the financial sector aka the financial transfer mechanism.
    The 19th century was full of this and low GDP per capita rates. Notice now the “mechanism” has started to hum again, keeping the US out of recession and boosting consumption. This imo, is why the US is being less effected by the global slowdown and got people scratching their heads.
    This financial “mechanism” replaced the Keynesian wage inflation push model in the late 70′s which replaced the classical deflation model before it. Wages don’t control demand anymore. Hence, wages must be ignored when undertanding the financial transfer mechanism. Wages follow the leader with this system.
    Your post is full of intellectually driven talking points and nonsensical ideological mumbling. You don’t have a clue yet make such a post. You can do far far better.

  5. MarkS

    The Rage” – You’re a true believer in the financial transfer system that is transforming the US into a debtor nation. The “system” transfers asset control to off-shore entities beyond government control and taxation.
    The “transfer system” has evolved as a response to the automation and globalization that has displaced 24% of the US workforce in the last 60 years. Without a financial tie to the “means of production”, a large portion of the US population is utterly dependent on statist expenditures for defense, welfare and health care. The great problem is that multinational corporations and the global elite are becoming more adept at avoiding the tax man. This undermines the foundation on which the “transfer system” (a.k.a. the Welfare State) is based. Free-riding corporations and debt-driven government subsidies are both unsustainable.

  6. The Rage

    MarkS, I am a true “non-believer” and a keynesian wage inflationista. Always have and always will. We need to understand the system and the way it works.
    Posts that whine about ideals that don’t exist, become a problem and must be responded to.

  7. Anonymous

    “private consumption is a little below 99, GDP and employment are about 99.5 and investment is below 97.”
    Crowded out by healthcare/entitlements, and taxes

  8. Bruce Carman

    Rage, your moniker fits.
    MarkS, you get it.
    Rage, what is ideological about the content of my posts? The evidence is abundantly clear that we are following the historical Long Wave debt-deflationary regime, including Japan since the ’90s. That one does not see it or is not conditioned to look for it does not mean the evidence is not there.
    The big difference this time, as in the case of Britain in the 1870s to WW I, is that (1) the US spent an average of $700 billion/year on imperial wars (not a coincidence) since 9/11 (more than TWICE the rate of private GDP growth during the period), and cumulatively nearly 30% of today’s private GDP over the period; and (2) US supranational firms have, until recently, invested trillions of dollars over the past 20+ years in China-Asia to produce cheap goods and extract oil to import to the US. The investment in plant, equipment, infrastructure, and financial assets in China-Asia created a boom in China since ’90 on a scale that required 80-100 years for the US and UK to achieve in terms of GDP PPP per capita.
    The Fed reserve policy and massive US supranational investment in China-Asia has created demand from China-Asia that would not have otherwise occurred, resulting in unsustainable rate of growth of China-Asia beyond domestic resource reserves and net energy per capita.
    Moreover, the massive scale of US supranational investment and Fed policy reduced the value of the US$, padding US supranational firms’ nominal revenues and profits beyond what otherwise would have occurred without the trillions invested in China-Asia. The lower US$ coinciding with higher China-Asia demand and peak global oil production and exports has resulted in nominal commodities prices, particularly oil, being higher than organic demand would have otherwise been, setting up a global commodities price crash and rising US$ in the years ahead.
    Also, the so-called “recovery” in housing recently has been driven largely by cash speculators (They’re BAAAAAACK!!!) again creating artificial price signals to builders not supported by organic domestic growth of employment and incomes of the age 20-34 peak demographic cohort (whose employment yoy as a share of total employment began contracting again this past summer, coincident with recessions of the past). Builders have likely already overshot the organic secular demand for housing on an absolute and annual change basis. Housing is setting up for cyclical another decline, including a decline in the high-end buy-up and vacation segments of the market into ’16-’19 to as late as ’21-’22.
    Real private GDP per capita since ’08 is negative. Borrowing and spending by the US gov’t an equivalent of 100% of private wages and more than 50% of private GDP has not even resulted in positive real GDP per capita over four years. And now the peak Boomer demographic drag effects into the end of the decade will be an even larger downward force of real GDP per capita. What size deficits do we need over the next 4-5 years to keep real GDP per capita from contracting further?
    I suspect that it is not what I write but that you do not like the implications of what we face as a consequence of the conditions I describe, i.e., your cognitive dissonance is showing.
    We Americans have an arrogant streak in that we frequently and vociferously proclaim that “we are not Japan”, even though the evidence is inescapable that we are following the same trajectory as has Japan since the ’90s and our predecessors did similarly in the 1930s-40s, 1880s-90s, and 1830s-40s.
    It’s not ideology but the historical nature of the Long Wave of capitalism, a secular phenomenon not taught in economics departments or business schools, and that which Bernanke and his bankster benefactors are desperate to postpone or prevent. History, human nature, exponential mathematics, demographics, and the debt cycle strongly suggest they will fail to prevent the Long Wave debt-deflationary regime from running its course just as their predecessors similarly failed.

  9. Matt

    6 months after the Arab Spring Europe enters a recession. Recall that 2011Q1 had all time highs in oil prices in Euro terms. Perhaps that was enough to generate a mini oil shock. I’m not surprised they’re in recession and not surprised it isn’t a terribly deep recession. Absent the Euro taking a nose dive here I think they start growing again Q1 2013. Their fiscal mess is certainly the most visible cause of their mess, but as always I think energy price is acting as a constraint in the background.

  10. Bruce Carman

    Matt, the price of oil most definitely is a factor. However, Europe is also experiencing structural drag effects from demographics, as has been occurring in Japan since the late ’90s and the US will soon experience the peak negative effects therefrom.
    Europe reached the Jubilee (the ancients were well aware of the process going back to Babylon) tipping point (when the cumulative differential rate of debt to GDP reaches an order of exponential magnitude) of debt to wages, production, and GDP when the US reached a similar point for “private” debt in ’08. At the differential rates of growth of private US GDP, deficits/GDP, and growth of public debt, the US is as few as 4-5 years away from reaching the Jubilee point for “public” debt, as in Europe and Japan; and this does not include another recession in which deficts/GDP increase and net interest payments to receipts rise towards the critical 25% level at some future date.
    The current emphasis is on EU politicians’ bumbling and bickering, central bankers seeming cluelessness, and the spoiled, lazy southern European populations who don’t want to give up their welfare-state. However, what is sorely missing from the analysis is a thorough scrutiny of the motives and actions of the US, UK, and European banksters without whose rent-seeking efforts the debt would not have been created at such a scale and its burden so onerous for the bottom 90% of the population worldwide.
    Before any reset of the system and a new equilibrium established–quite likely at a necessarily lower real GDP per capita for everyone–the banksters, their lenders and shareholders, and shareholders of their many largest corporate borrowers must take necessary losses to the value of their debt and equity, which implies an historical loss of 40-50% given the levels of public and private debt to private GDP and wages.
    The banksters are directing the central bank and providing the narrative for the politicians and technocrats in the EU and IMF. Protect the banksters and corporate owners’ interest at all costs, and make those shiftless peasants in the bottom 90% take their lumps. Until there is full public scrutiny of banksters and their owners, an accounting of their motives, actions, and interests are made public, conditions in Europe, and eventually the US and around the world, will worsen for the bottom 90%+.
    Were the banksters to be exposed for their arrogance, mischief, and cynicism, and their surrogates similarly scrutinized and held to account, a mass-social backlash would certainly occur, which is precisely why the banksters need central banks and technocrats to run cover for them.

  11. Carol

    At least the German discrimination seems to end which is good. In other words the future of Europe will be based on ordoliberal governance.

  12. Brick

    Germany looks anything but rosy. Incoming orders have been looking bad since mid 2011: (BV 4.1 is better than X12 in every respect)
    Here is a fun fact: The story that it’s the German export that is causing the declining incoming orders isn’t entirely correct: internal orders (gray) were first to underperform:
    Production still looks OK.
    But capacity utilysation is declinig:
    Major companies like MAN are planning Kurzarbeit for next year.

  13. Bruce Carman

    Brick, exports make up 43% of Germany’s GDP, whereas half or more of Germany’s exports go to neighboring EU countries. So, by definition, Germany’s production and export machine is heading for a contraction and then a much slower trend rate thereafter.

  14. Roosevelt Dillard

    With Europe in a recession and showing no signs of getting out anytime soon as a result of their flaud banking policies, how long before you all expect a turnaround in their Economic growth?

  15. Samantha Davis

    The International Monetary Fund (IMF) is fairly upbeat. It upped its forecast for 2012 growth (17 April) from 0.6 per cent to 0.8 per cent. It cited the colossal efforts in February to avert eurozone meltdown by the European Central Bank, when it extended cheap lending to banks to £1trillion.

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