Analysis released Tuesday by the IMF offers some less than positive insight into the recovery from the current recession, suggesting that effects of the downturn will be felt long after it is technically over. For example, output per head following a crisis is typically 10% lower than it would have been without a crash seven years after the crisis has ended. The IMF also found that recessions associated with banking crises lead to output declines that are three times as large as those that follow currency crises.
Even during recovery, many jobs are lost and many people drop out of the labor force. The number of discouraged workers was 758,000 in August, nearly double what it was a year earlier.
However, not all of the findings are cause for gloom. The IMF found that big increases in government spending help to limit damage, in spite of increases in government debt. But even if the US has made the right decisions so far, we must now decide when to end fiscal and monetary stimulus so that improvements are not stalled but debt is not increased more than necessary.
2 comments:
A very sobering and realistic look at what is actually going on in the economy - After Bernanke told the nation that "the recession is very likely over at this point" most Americans probably did not understand that the economy would remain weak for some time after. It was interesting to learn that with the research that the IMF did, recessions such as the ones that we currently are going through which are associated with banking crises lead to output declines that are about 3 times as large as those that follow currency crises. Also the fact that in August there were about 758,000 "discouraged" workers does not help consumer confidence and shows that a good amount of Americans have simply given up on job searching because they believe there are no jobs available for them.
After reading this article as well as a few others it is quite obvious to me that we need to be very careful in this period of recovery. While it is likely that the recession is over, the economy needs to be patient and ensure quality growth and not just rapid unsustainable growth. If we settle for the latter type of growth we may very well end up in another recession sooner then we would like.
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