Monday, 2 April 2012

GDP contraction in the crisis Euro area economies

Michael Burke: OECD comparative data for the crisis EU countries highlights the extent of that crisis.

Greece has become a by-word for the effects of ‘austerity’. OECD Greek GDP data has only been published up to Q1 2011. To date Greek GDP has fallen by 9.1% since the final quarter of 2007.

Portugal, whose creditors have also been bailed out by the Troika has seen its GDP fall by 5.1%.

Spain has recently created waves with the Rightist government arguing that it will overshoot the deficit targets set for it externally by the Troika. Formerly, its Socialist government had adopted measures to boost economic activity including increased investment in infrastructure and by increasing the minimum wage. As the chart shows there was a mild economic recovery. Subsequently, ‘austerity’ was imposed and economic activity has begun to contract once more. GDP has fallen by 3.5%.

In Ireland GDP has fallen by 11.6% since the end of 2007. This is a greater contraction than any of the crisis-hit countries in the Euro Area, including Greece. Obviously Greek GDP may have declined even further by the end of 2011. But at the same point of Q1 2011, Irish GDP had fallen by 11.5%- more than Greece. The chart below clearly shows that the total decline in Irish GDP has been much greater than in Greek GDP.

If the final data shows that the Greek economy has contracted by more than the Irish economy, this will owe nothing to any Irish recovery, but solely because the Greek economy has been contracting even faster.

Initially the Greek recession was milder than the EU average, just over2% compared to a decline of just over 4% for the EU as a whole. But no country in the Euro Area has had greater cuts in public spending imposed on it. The result has been an economic slump. But the widely-held belief that public spending cuts in Ireland have been a success is not supported by the facts. It has also produced a slump in Ireland.

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