Recession: One-year storm before the six-year dawn

According to the experts, a year of economic recession is usually followed by six to seven years of high growth rates. Such a medium-term view no doubt sounds optimistic in the present climate of gloom and uncertainty. But it is probably the most cool-headed and realistic. The American economy, for instance, which plays the role of a quasi-locomotive in the present global system, experienced its last recession in 1991 and then went into a phase of spectacular growth of national income and prosperity for nine consecutive years (see table). This was a repetition of what happened in the 1980s. The contraction in economic activity in 1982 was followed by high growth rates. European Union member states fared similarly. The downturn in economic activity in 1993 gave way to a steady string of growth rates for seven years, each better than the previous year. In Greece, the years when the economy is hit by recession are, as a rule, those in which political events take precedence; they coincide with developments or decisions that cause great upheaval, uncertainty or serious reservations. These are periods when the business climate is ruffled and investment initiatives called off. For instance, 1993 was the year when the New Democracy government of Constantine Mitsotakis fell; 1987 was the year when PASOK’s Andreas Papandreou decided to abandon the program of economic stabilization overseen by his successor and present prime minister, Costas Simitis. As the table shows, 1981, 1982 and 1983 were the first three years of PASOK in power and fear of the unknown Socialist newcomer seems to have plunged the economy into negative growth rates. Before that, the Cyprus crisis of 1974 caused national income to contract by 6.4 percent. Some observers note that the factors traditionally associated with recession in Greece no longer exist, and cannot even be considered as possible factors in forecasting. Indeed, political developments, particularly after the recent ruling party congress, are becoming more closely aligned with those elsewhere in Europe. At the same time, the 17-trillion-drachma, European Union-subsidized third Community Support Framework investment plan for the 2001-2006 period, and the structural changes that are to take place in the next few years, make high growth rates possible – indeed, much higher than in other EU member states – as pointed out in last week’s report by the Organization for Economic Cooperation and Development (OECD). Why so much talk about recession then? For 2002, which everyone expects to be a very difficult year, OECD forecasts a growth rate of 4 percent for Greece. Would then anyone justifiably consider as exaggerated the concerns and fears of the Greek business community, the cutbacks or cancellation of investments? Is it merely fashionable to prophesy gloom, the reverse of the trend of investing in tens of billions of drachmas in the stock market just two years ago? There is no doubt that the slowdown or stagnation of the US economy, particularly after the September 11 attacks will influence the course of the European economies. On the other hand, no analyst seems prepared to rule out the possibility that the current recession pressures will speed up the recovery, perhaps even with some force as repeatedly in the past. The recessions of recent decades seem rather transient phenomena, and, in any case, seem to have a rehabilitating effect, leading to increases in productivity and new cycles of more productive investment. Crises also bring out new forces and new alliances, and the strongest companies gain market shares and higher profits in the medium term.