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 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, 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 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 world-wide recessions.

In the U.S. it was characterized by large layoffs, outsourcing, and a jobless recovery, with many formerly high-paid manufacturing employees being forced into much lower paid service positions. Many credit homeowners in the midst of the housing bubble for taking-out second mortgages on the added property value and using the funds to boost consumer spending at the request of elected officials who told Americans it was patriotic and that they should spend their way out of the recession. There is now debate as to whether these actions were wise within the subprime mortgage financial crisis.

United States

The U.S. economy shrank 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). Strictly speaking, the U.S. economy was not in recession during this period -- the common definition being "a fall of a country's real gross domestic product in two or more successive quarters."

Those using a less traditional definitions of the term deem part or all of this period to have been a recession and there remains some debate over the start and end dates. The initial report by the National Bureau of Economic Research (NBER), declares a recession that lasted from March 2001 to November 2001, as real gross domestic product dropped during this period by 0.2% total from the fourth quarter of 2000. However, even this definition is in doubt. Several members of NBER's business cycle dating committee have said that revised data indicates a recession actually began some time within the final months of 2000. Committee members suggest they are inclined to move the date.^[1] NBER President Martin Federstein 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."^[1]

Using the stock market as a benchmark, a 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 2001 through 2003.

Canada

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 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 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.

Russia

See also: History of post-Soviet Russia#The crises of 1998

The 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 (see Russian financial crisis). The government acted by dragging its feet on privitization programs. Russians responded to this situation with approval by electing the more pro-dirigist and less liberal 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. 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 dirigism.

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 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.

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 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.

References

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