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Growth analysis with two dual character
Yesterday rate of economic contraction for 2009 was announced: 4.7 percent. Contraction is lower than expected. Upon newly announced figures, formerly declared gross domestic product (GDP) data for 2008 and 2009 were also revised. Rates of contraction for the first three quarters of 2009 were reduced. On the other hand, it was realized that growth rate in 2008 was lower. 2008 growth rate, known to be 0.9 percent, was realized to be 0.7 percent.
Data announced after the trough of economic performance have dual characters; it equips both optimists and pessimists. So, let us examine the growth rates with both of the lenses. Positive side first: It was promising that 2009 economic contraction rate was lower than expectations. That the economy started to grow for the first time after a long period as of the last quarter of 2009 and that the rate of growth stood above the expectations at 6 percent should be considered as favorable developments. Let us advance on the positive details: the rate of rise in consumption expenditures recorded in the last quarter of 2009 is the highest since 2008. We should also note that exports made positive contribution to growth after a long time.
Now, let the opposite character step in: The most critical one is that private investment expenditures continued to fall. Through the rate of contraction is reduced, it should be accounted that private consumption expenditures had already dropped by 25 percent in the last quarter of 2008 compared to the same period in 2007. Now, a further 3.6 percent contraction is added to this. On the other hand, this bad investment performance is not an unexpected development. Given the significant idle capacity and that consumers started to consume again just recently, we cannot expect a rapid rise in investments.
Now, let us put both the optimistic and pessimistic interpretations apart and examine the growth figures with an 'unbiased' lens. At this point I need to provide a graph which will employ GDP figures net of seasonal effects and the changes in the number of working days. This is also the only way to decide objectively where we stood before and after the crisis.
To kill two birds with one stone, I overlapped the GDP data for the period after the 2001 crisis and the 2008 crisis. I took the peak GDP levels before the crisis as 100. And I recalculated the GDP data for the rest of the period in this parallel. I tried to analyze the GDP data within a frame that covers the period from the last four quarters before the peak and the date where the peak level is re-achieved after the crisis.
Graph 1 gives the output of these steps. The period in the horizontal axis labeled '0' indicates the periods where GDP peaked before each crisis. When you move rightwards you see the movement before the crisis and vice versa. The dotted curve which covers the whole frame horizontally shows the GDP movements for the 2001 crisis. The picture can be summarized as follows:
First, the period from the peak to the trough is same for both crises: four quarters. Second, the GDP loss from the peak to the trough is wider in case of the last crisis: it is 11.7 percent for the 2001 crisis and 13.4 percent for the last crisis. Third, it took nine quarters to re-achieve the pre-crisis level of GDP in the case of 2001 crisis. Currently, seven quarters have passed since the peak of GDP before the crisis; and we are still 3.1 percent below the peak GDP level.
Graph 1: GDP movements in 2001 crisis and the last crisis (quarterly data net of seasonal effects and the changes in the number of working days)
This commentary was published in Radikal daily on 01.04.2010