Growth prospects in developed countries

This drama of the recession versus countercyclical policy will be the main focus for the next year or more and even during the next upswing as the gap between output and potential output is being closed after a bottom is reached

Heading into a long recession

The present crisis is a different sort of recession in respect to what we have got used to in the post-war era. While most of the people here are working in the financial services sector and might be focusing on the turmoil in financial markets, I come from a different place, and my instinct is to always focus on the real economy and on the connections between the real economy and the financial economy. You could see stagnation, or the beginning of a recession in the US already toward the end of 2007 and the first quarter of 2008. Consumption spending even then was obviously flattening out while exports from the US provided what growth there actually was. Stagnation came later in Europe and that – of course – affected the US negatively. So, the second quarter of this year was clearly a last gasp. Employment was been falling throughout 2008, we have lost something like a million of jobs since the beginning of the year and recession – and I had planned to say that it was close – but by now it is actually already here. And all the indications are that this recession will last longer than the standard two quarters that were usual since 1950, even compared to the 1982 recession.