Early 2000s recession
Encyclopedia
The early 2000s recession was a decline in economic activity which occurred mainly in developed countries. The recession
affected the European Union
mostly during 2000 and 2001 and the United States
mostly in 2002 and 2003. The UK, Canada
and Australia
avoided 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 inflation
and low unemployment
, had already ceased in East Asia
during the 1997 Asian financial 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 worldwide recessions. Many economists object to characterizing it as a "recession," in the United States, since there were not two consecutive periods of negative growth.
ended in March 1991, the country hit a belated unemployment rate peak of 7.8% in mid-1992. Job growth was initially muted by large layoffs among defense related industries. However, payroll gains accelerated in 1992 and experienced robust growth through the year 2000.
As the Dot Com bubble
occurred in the mid and late 1990s, assorted predictions that eventually the bubble would burst emerged frequently. The Federal Reserve raised interest rates six times between June 1999 and May 2000 in an effort to cool the economy to a soft landing. The actual burst of the stock market bubble occurred in the form of the NASDAQ
crash in March 2000. Growth in gross domestic product
slowed considerably in the third quarter of 2000 to the lowest rate since a contraction in the first quarter of 1991.
The NBER's Business Cycle Dating Committee has determined that a peak in business activity occurred in the U.S. economy in March 2001. A peak marks the end of an expansion and the beginning of a recession. The determination of a peak date in March is thus a determination that the expansion that began in March 1991 ended in March 2001 and a recession beganhttp://www.nber.org/cycles/cyclesmain.html. The expansion lasted almost 10 years, the longest in the NBER's chronology http://www.nber.org/cycles/november2001/recessnov.html. 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 2001http://www.nber.org/cycles/cyclesmain.html, a period of eight months at the beginning of President George W. Bush's term of office. 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, 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 Advisors to several months before the one given by the NBER was seen as politically motivated.
BCDC members suggested they would be open to revisiting the dates of the recession as newer and more definitive data became available. In early 2004, NBER President Martin Feldstein said:
Thus, the date was revised in late 2008.
From 2000 to 2001, the Federal Reserve in a move to quell the stock market, made successive interest rate increases, credited in part for "plunging the country into a recession." Using the stock market as an unofficial benchmark, a recession would have begun in March 2000 when the NASDAQ
crashed following the collapse of the Dot-com bubble
. The Dow Jones Industrial Average
was relatively unscathed by the NASDAQ's crash until the September 11, 2001 attacks, 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.
and 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 11 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.
and less liberal Vladimir Putin
as 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 dirigisme
.
attempted to cultivate inflation
with high liquidity and a nominal 0% interest rate
on loans. Other aspects of the Japanese economy were good during the early 2000s; unemployment remained relatively low, and China
became somewhat dependent on Japanese exports. The bear market, however, continued in Japan despite the best efforts of the Bank.
, 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 Eurozone
for 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.
France
and Germany
both entered recession towards the end of 2001, but in May 2002 both countries declared that their recessions had ended after a mere six months each.However, some European Union countries - including the United Kingdom
- managed to avoid sliding into recession during this period.
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
affected the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
mostly during 2000 and 2001 and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
mostly in 2002 and 2003. The UK, Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
and Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
avoided the recession for the most part, while Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
, a nation that did not experience prosperity during the 1990s, began to recover. Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
'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 inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
and low unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
, had already ceased in East Asia
East Asia
East Asia or Eastern Asia is a subregion of Asia that can be defined in either geographical or cultural terms...
during the 1997 Asian financial 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 worldwide recessions. Many economists object to characterizing it as a "recession," in the United States, since there were not two consecutive periods of negative growth.
United States
After the relatively mild 1990-91 recessionEarly 1990s recession in the United States
The United States entered recession in July 1990, which lasted 8 months through March 1991. Although the recession was mild relative to other post-war recessions, it was characterized by a sluggish employment recovery, most commonly referred to as a jobless recovery...
ended in March 1991, the country hit a belated unemployment rate peak of 7.8% in mid-1992. Job growth was initially muted by large layoffs among defense related industries. However, payroll gains accelerated in 1992 and experienced robust growth through the year 2000.
As the Dot Com bubble
Dot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
occurred in the mid and late 1990s, assorted predictions that eventually the bubble would burst emerged frequently. The Federal Reserve raised interest rates six times between June 1999 and May 2000 in an effort to cool the economy to a soft landing. The actual burst of the stock market bubble occurred in the form of the NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
crash in March 2000. Growth in gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
slowed considerably in the third quarter of 2000 to the lowest rate since a contraction in the first quarter of 1991.
The NBER's Business Cycle Dating Committee has determined that a peak in business activity occurred in the U.S. economy in March 2001. A peak marks the end of an expansion and the beginning of a recession. The determination of a peak date in March is thus a determination that the expansion that began in March 1991 ended in March 2001 and a recession beganhttp://www.nber.org/cycles/cyclesmain.html. The expansion lasted almost 10 years, the longest in the NBER's chronology http://www.nber.org/cycles/november2001/recessnov.html. According to the National Bureau of Economic Research
National Bureau of Economic Research
The National Bureau of Economic Research is an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community." The NBER is well known for providing start and end...
(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 2001http://www.nber.org/cycles/cyclesmain.html, a period of eight months at the beginning of President George W. Bush's term of office. 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, 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
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
. A move in the recession date in a 2004 report by the Council of Economic Advisors to several months before the one given by the NBER was seen as politically motivated.
BCDC members suggested they would be open to revisiting the dates of the recession as newer and more definitive data became available. 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."
Thus, the date was revised in late 2008.
From 2000 to 2001, the Federal Reserve in a move to quell the stock market, made successive interest rate increases, credited in part for "plunging the country into a recession." Using the stock market as an unofficial benchmark, a recession would have begun in March 2000 when the NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
crashed following the collapse of the Dot-com bubble
Dot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
. The Dow Jones Industrial Average
Dow Jones Industrial Average
The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
was relatively unscathed by the NASDAQ's crash until the September 11, 2001 attacks, 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
Stock market downturn of 2002
The stock market downturn of 2002 is the sharp drop in stock prices during 2002 in stock exchanges across the United States, Canada, Asia, and Europe...
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
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 TSX had almost wholly been attributed to two stocks: NortelNortel
Nortel Networks Corporation, formerly known as Northern Telecom Limited and sometimes known simply as Nortel, was a multinational telecommunications equipment manufacturer headquartered in Mississauga, Ontario, Canada...
and BCE
Bell Canada
Bell Canada is a major Canadian telecommunications company. Including its subsidiaries such as Bell Aliant, Northwestel, Télébec, and NorthernTel, it is the incumbent local exchange carrier for telephone and DSL Internet services in most of Canada east of Manitoba and in the northern territories,...
. Both companies were hard hit by the downturn, especially Nortel, which was forced to lay off much of its workforce. The events of September 11 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
Fiscal imbalance in Canada
Fiscal imbalance is the term used in Canada to describe a monetary imbalance between the Canadian federal government and the provincial governments....
. 2003 saw elections in six Canadian provinces and in only one did the governing party not lose seats.
Russia
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 1998 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-dirigistDirigisme
Dirigisme is an economy in which the government exerts strong directive influence. While the term has occasionally been applied to centrally planned economies, where the state effectively controls both production and allocation of resources , it originally had neither of these meanings when...
and less liberal Vladimir Putin
Vladimir Putin
Vladimir Vladimirovich Putin served as the second President of the Russian Federation and is the current Prime Minister of Russia, as well as chairman of United Russia and Chairman of the Council of Ministers of the Union of Russia and Belarus. He became acting President on 31 December 1999, when...
as 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 dirigisme
Dirigisme
Dirigisme is an economy in which the government exerts strong directive influence. While the term has occasionally been applied to centrally planned economies, where the state effectively controls both production and allocation of resources , it originally had neither of these meanings when...
.
Japan
Japan's recession, which started in the early 1990s, continued into the 2000s, with deflation being the main problem. Deflation began plaguing Japan in the fiscal year ending 1999, and by 2005 the yen had 103% of its 2000 buying power. The Bank of JapanBank of Japan
is the central bank of Japan. The Bank is often called for short. It has its headquarters in Chuo, Tokyo.-History:Like most modern Japanese institutions, the Bank of Japan was founded after the Meiji Restoration...
attempted to cultivate inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
with high liquidity and a nominal 0% interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
on loans. Other aspects of the Japanese economy were good during the early 2000s; unemployment remained relatively low, and China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
became somewhat dependent on Japanese exports. The bear market, however, continued in Japan despite the best efforts of the Bank.
European Union
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 euroEuro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
, 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 Eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...
for 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
Americas
The Americas, or America , are lands in the Western hemisphere, also known as the New World. In English, the plural form the Americas is often used to refer to the landmasses of North America and South America with their associated islands and regions, while the singular form America is primarily...
) had an unfavorable exchange rate.
France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
and Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
both entered recession towards the end of 2001, but in May 2002 both countries declared that their recessions had ended after a mere six months each.However, some European Union countries - including the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
- managed to avoid sliding into recession during this period.