- Early 2000s recession
The Early 2000s
recessionwas felt in mostly Western countries, affecting the European Unionmostly during 2000 and 2001 and the United Statesmostly in 2002 and 2003. Canadaand Australiaavoided the recession for the most part, while Russia, a nation that did not experience prosperity during the 1990s, began to recover. Japan's 1990s recession continued. The Early 2000s recession had been predicted by economists for years, because the boom of the 1990s, which was accompanied by both low inflationand low unemployment, had already ceased in East Asiaduring that region's 1997 economic crisis. The 1990s were also a period of recession between 1995 and 1998 inclusive. The Early 2000s recession was not as bad as many predicted it would be, nor was it as bad as either of the two previous world-wide recessions.
In the U.S. it was characterized by large layoffs,
outsourcing, and a jobless recovery, with many formerly high-paid manufacturing and professional employees being forced into much lower paid service positions.
The U.S. economy shrank in three non-consecutive quarters in the early 2000s (the third quarter of 2000, the first quarter of 2001, and the third quarter of 2001). According to the
National Bureau of Economic Research(NBER), which is the private, nonprofit, nonpartisan organization charged with determining economic recessions, the U.S. economy was in recession from March 2001 to November 2001, a period of eight months. However, economic conditions did not satisfy the common shorthand definition of recession, which is "a fall of a country's real gross domestic product in two or more successive quarters," and has led to some confusion about the procedure for determining the starting and ending dates of a recession.
The NBER's Business Cycle Dating Committee (BCDC) uses monthly, rather than quarterly, indicators to determine peaks and troughs in business activity [http://www.nber.org/cycles/recessions.html, retrieved 8 April 2008] , as can be seen by noting that starting and ending dates are given by month and year, not quarters. However, controversy over the precise dates of the recession led to the characterization of the recession as the "Clinton Recession" by Republicans, if it could be traced to the final term of President
Bill Clinton. A move in the recession date in a 2004 report by the Council of Economic Advisorsto several months before the one given by the NBER was seen as politically motivated. [cite web|url=http://www.businessweek.com/magazine/content/04_08/b3871044.htm|title=Inventing The "Clinton Recession" |date= February 23 2004|work= Business WeekOnline|author=Michael J. Mandel|accessdate=2008-01-09] BCDC members suggested they would be open to revisiting the dates of the recession as newer and more definitive data became available.Henderson, Nell (January 22, 2004). [http://www.washingtonpost.com/ac2/wp-dyn/A38826-2004Jan22?language=printer Economists Say Recession Started in 2000] . "The Washington Post."] In early 2004, NBER President Martin Feldstein said::"It is clear that the revised data have made our original March date for the start of the recession much too late. We are still waiting for additional monthly data before making a final judgment. Until we have the additional data, we cannot make a decision."
Nonetheless, as of early 2008, no further revision to the dates has been made.
Using the stock market as an unofficial benchmark, a recession would have begun in March 2000 when the
NASDAQcrashed following the collapse of the Dot-com bubble. The Dow Jones Industrial Averagewas relatively unscathed by the NASDAQ's crash until the September 11, 2001attacks, after which the DJIA suffered its worst one-day point loss and biggest one-week losses in history up to that point. The market rebounded, only to crash once more in the final two quarters of 2002. In the final three quarters of 2003, the market finally rebounded permanently, agreeing with the unemployment statistics that a recession defined in this way would have lasted from 2001 through 2003.
Canada's economy is closely linked to that of the United States, and economic conditions south of the border tend to quickly make their way north. Canada's stock markets were especially hard hit by the collapse in high-tech stocks. For much of the 1990s the rapid rise of the
TSXhad almost wholly been attributed to two stocks: Norteland BCE. Both companies were hard hit by the downturn, especially Nortel, which was forced to lay off much of its workforce. The events of September 11th also hurt the Canadian stock markets and were especially devastating to the already troubled airline sector.
However in the wider economy Canada was surprisingly unhurt by these events. While growth slowed, the economy never actually entered a recession. This was the first time that Canada had avoided following the United States into an economic downturn. The rate of job creation in Canada continued at the rapid pace of the 1990s. A number of explanations have been advanced to explain this. Canada was not as directly affected by 9/11 and the subsequent wars, and the downward pressure of these events was more muted. Canada's fiscal management during the period has been praised as the federal government continued to bring in large surpluses throughout this period, in sharp contrast to the United States. Unlike the United States no major tax cuts or major new expenditures were introduced. However, during this time, Canada did pursue an expansionary monetary policy in an effort to reduce the effects of a possible recession. Many provincial governments suffered greater problems with a number of them returning to deficits, which was blamed on the fiscal imbalance. 2003 saw elections in six Canadian provinces and in only one did the governing party not lose seats.
The Soviet Union's last year of economic growth was 1989, and throughout the 1990s, recession ensued in the
Former Soviet Republics. In May 1998, following the 1997 crash of the East Asian economy, things began to get even worse in Russia. In August 1998, the value of the ruble fell 34% and people clamored to get their money out of banks (see Russian financial crisis). The government acted by dragging its feet on privatization programs. Russians responded to this situation with approval by electing the more pro-dirigist and less liberal Vladimir Putinas President in 2000. Putin proceeded to reassert the role of the federal government, and gave it power it had not seen since the Soviet era. State-run businesses were used to out-compete some of the more wealthy rivals of Putin. Putin's policies were popular with the Russian people, gaining him re-election in 2004. At the same time, the export-oriented Russian economy enjoyed considerable influx of foreign currency thanks to rising worldwide oil prices (from $15 per barrel in early 1999 to an average of $30 per barrel during Putin's first term). The early 2000s recession was avoided in Russia due to rebound in exports and, to some degree, a return to dirigism.
Japan's recession, which started in the early 1990s, continued into the 2000s, with
deflationbeing the main problem. Deflation began plaguing Japan in the fiscal year ending 1999, and by 2005 the yenhad 103% of its 2000 buying power. The Bank of Japanattempted to cultivate inflationwith high liquidityand a nominal 0% interest rateon loans. Other aspects of the Japanese economy were good during the early 2000s; unemployment remained relatively low, and Chinabecame somewhat dependent on Japanese exports. The bear market, however, continued in Japan despite the best efforts of the Bank.
Transition left the economy of the European Union in a cautiously optimistic state during the early 2000s. The most difficult years were 2000-2001, precipitating the worst years of the American recession. The European Union introduced a new currency on
January 1, 1999. The euro, which was met with much anticipation, had its value immediately plummet, and it continued to be a weak currency throughout 2000 and 2001. Inflation struck the Eurozonefor a few months in summer 2001 but the economy deflated within months. In 2002, the value of the euro began to rapidly rise (reaching parity with the US Dollar on July 15, 2002). This hurt business for companies based in Europe, as the profits made abroad (especially in the Americas) had an unfavorable exchange rate.
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