Early 2000s recession
The
Early 2000s recession was felt in mostly Western countries, affecting the
European Union mostly during
2000 and
2001 and the
United States mostly in
2002 and
2003.
Canada 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, since the boom of the
1990s, which was accompanied by both low inflation and low unemployment, had already ceased in
East Asia during that region's
1997 economic crisis. 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.
The US economy experienced negative growth 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. Using the common definition of a recession as "as a fall of a country's real Gross Domestic Product in two or more successive quarters", then the United States was not technically in recession during this period.
The beginning and ending dates of the recession, however, are argued by those using a less traditional definition of the term. According to the
National Bureau of Economic Research, the Early 2000s recession lasted from
March 2001 to
November 2001, as "real"
Gross Domestic Product (Regular GDP adjusted for inflation) dropped during this period by 0.6% total from the fourth quarter of
2000.
It can be argued that the recession lasted from
2000 through
2003, inasmuch as the average unemployment went up from 4.0% to 6.0% during this period (reaching a high of 6.5% in
June 2003), before finally dropping to 5.6% in
2004. Using the stock market as a benchmark, the recession began 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 terrorist attacks, after which the DJIA suffered its worst one-day point loss and biggest one-week losses in history. 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 the recession lasted from
2000 through
2003.
President Bush responded to the recession with tax-cut legislation in
2001 and
2003. Critics lambasted these acts, arguing that they increased the federal deficit to dangerous levels, while others felt that they helped keep the Early 2000s recession from being as sharp a decline as it was predicted to have been. Nonetheless economists have shown mathematically that the time taken from peak to trough (of the
economic cycle) was approximately the same as in the early 1990s, casting a shadow on the efficacy of these tax cuts.
Possible Causes
The cause of the recession are often ascribed politically either to President Clinton by the Republicans or President Bush by the Democrats. However it would be untrue to suggest that either President caused the economy to recede. Causes often cited include:
*The bursting of the
Tech bubble in March 2000, which caused an end to the '
irrational exuberance' of the late 1990s, in Economic terms, the wealth effect happened in reverse. As consumers saw the value of their assets fall, they were less likely to purchase as many goods and services, choosing instead to save, possibly for fear of job losses. In addition, the
Tech bubble saw the creation of many Web businesses with unsustainable business models that survived on high stock prices or venture capital. As the stock bubble deflated, the cash for these companies dried up, and many failed or sharply downsized. In turn, this created a flood of server hardware on the secondary market, and hardware and telecom companies suffered as a result.
*Corporate scandals such as the
Enron and
Worldcom debacles. President Bush is often blamed for the flourishing of corporate scandals in 2001 however it must be remembered that these scandals began two years before he took office, furthermore, these scandals were revealed way into 2001, marking these scandals off as events that made the existing problems worse, rather than initial causes.
*The natural end of the economic cycle. The U.S. economy had been expanding since late 1992, according to some economists it was time for the usual cycle to occur.
*A high deflationary impact because there were huge budget surpluses at the time ($236 billion in FY01). Keynesian economics suggests that this would slow the economy because the government is hoarding a substantial amount of money.
*The
millennium bug. Prior to 2000, a lot of money was spent trying to tackle the Y2K bug. After the start of 2000, this spending dried up and many firms decided to cut down sharply on technological investment because they had most of the technology they needed for the meantime, this may have been a key factor in the decline in the stock market after March 2000, and this fall in investment was detrimental to the general performance of the economy.
*The economic shock of the September 11th terror attacks, which resulted in a drastic fall in consumer confidence, huge insurance payouts and a fall in the demand for travel and tourism
Canada's economy is closely linked to that of the United States, and economic conditions south of the border tend quickly to 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:
Nortel and
BCE. Both companies were hard hit by the downturn, especially Nortel that was forced to lay off much of its workforce. The events of September 11th also hurt the Canadian stock markets and was 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 one of the first times 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 were 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. 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.
see also History of post-Soviet Russia#The crises of 1998The Soviet Union's last year of economic growth was
1989, and throughout the
1990s, recession ensued in the
Former Soviet Republics. In the
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. The government acted by dragging its feet on privitization programs. Russians responded to this situation with approval by electing conservative
Vladimir Putin as President in
2000. Putin proceeded to re-assert 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, as the Early 2000s recession was, for the most part, avoided in Russia due to a return to conservatism.
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 Japan 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.
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
Eurozone for a few months in
summer 2001 but the economy disinflated 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.
