However, the North American recession ended in July 1921 without any intervention. In fact, the remainder of the 1920s was a boom time for the American economy, with GDP per capita increasing from $6,460 to $8,016, earning it the nickname of the “Roaring Twenties”. Meanwhile, Britain’s economic recovery after the war was slow. There was a brief economic boom between 1919 and 1920 as pent-up demand for consumer goods was released, followed by a recession between 1921 and 1922, which saw unemployment rise to 10% and remain high throughout the decade.
In Germany, recovery was far from speedy. The impacts of recession were worsened by the Treaty of Versailles, which demanded Germany pay financial restitution to Great Britain, France, Belgium and other Allies to the sum of 132 billion gold marks, or around $269 billion (£215bn) today. As the value of the German mark fell, the Weimar Republic kept printing more money which led to hyperinflation. In fact, it ended up taking 92 years for Germany to fully pay off its debts, and the country made the final payment in 2010 on the 20th anniversary of German reunification.
Pictured are German delegates at Versailles for the signing of the Peace Treaty in 1919.
It’s difficult to disentangle the economic impacts of the Spanish Flu pandemic, which began in Spring 1918, from those of the First World War. In fact, the Spanish Flu – which is unlikely to have originated in Spain despite its name, although scientists still dispute its true origin – was deadlier than the Great War, infecting as much as two-fifths of the global population and killing between 20 to 50 million people. Moreover, the fact that the outbreak of the disease coincided with the end of the war made it spread faster, as armies were demobilising and returning to their home countries.
The US was badly hit by the virus, but the cities that went into lockdown the quickest were most effective in lowering the death rate. The city of St. Louis, Missouri quarantined citizens two days after the first case arrived and the city had a low death toll of 358 people per 100,000. In comparison, 10 days after the first case arrived in Philadelphia, the city hosted a parade which was attended by more than 200,000 people and the city’s death toll was more than double that of St. Louis, at 748 deaths per 100,000. Given that those who died from the flu were typically aged between 15 and 40, the pandemic impacted the most economically active citizens.
There is limited economic data from the time, so one researcher, Thomas A Garrett of the St. Louis Federal Reserve Bank, ploughed through newspapers from the time to determine the effects on the economy. He found that Memphis Street Railway reported that 124 out of 400 employees were too sick to go into work one day, while the city of Little Rock, Arkansas saw general merchants report a decline in business of 40%, with others reporting a 70% decline. However, Garett concluded that the majority of the flu’s economic impacts in the US were “short-term”.
The impacts of the flu were worse in Asia and Africa, where overcrowding and lack of healthcare facilities compounded the effects. In India, the mortality rate was shockingly high at a rate of 5%, and even Mahatma Gandhi (pictured), the chief leader of India’s independence, was infected. As for the economic consequences, 1918 saw India’s real GDP growth reach its lowest level in recorded history (-10.5%), while inflation was almost at an all-time high (only to be topped in 1942 by WWII), according to the Central Statistics Office and OECD data. The path to economic recovery was slow, which left the country in a poor state to deal with the Great Depression 10 years later.
The Great Depression was the worst economic downturn in the past century and was started by the Stock Market Crash of 1929. After a prosperous decade in the US, during which many people had invested their savings into stocks, share prices had far exceeded their actual value and investors suddenly sold off masses of shares. This led stock prices to fall by more than half between September and November 1929, dropping from $64 billion to around $30 billion.
In the US, unemployment peaked at 25%, house prices fell by two-thirds and deflation rose above 10%. The Depression officially ended in 1939, but economic recovery was slow. President Franklin’s New Deal (1932) spending is thought to have played a role in boosting growth between 1934 and 1937, while an increase in the American money supply after the country abandoned the gold standard in 1933 helped to stimulate spending by reducing interest rates and increasing availability of credit. But the onset of the Second World War which saw many young men enlist to the military slashed the unemployment rate.
In the UK, the Great Depression hit industrial areas such as northern England and south Wales the hardest, and as the value of British exports halved there was a huge decline in heavy industry. After some unsuccessful measures by the government, including pay cuts and tax hikes, Britain withdrew from the gold standard in 1931 in order to be able to increase money supplies (two years' ahead of the US), and this helped to make exports more competitive and aided economic recovery.
After the end of the Second World War, many countries experienced a boom. In Germany, the postwar economic recovery was so incredible that it has become known as the “German Economic Miracle” or Wirtschaftswunder. From a country in ruins, with much of the Germany's economically active population wiped out by the war, housing stock reduced by 20% and industrial input down by one-third, Germany rose up from the ashes to become a prominent global power.
Ludwig Erhard (pictured right), a member of the Social Democrat Party, played a significant role in the transformation. In 1948, a currency he helped to create, the Deutsche Mark, replaced the Reichsmark, heralding a period of low inflation and speedy economic growth. He also controversially decided to axe price ceilings on goods. As a result of these two actions, the black market ended almost instantly, people stopped bartering and shops became stocked with goods again. By 1958, German industrial production was four times higher than a decade earlier.
In the US, some feared that the end of the war could bring another economic downturn, but that couldn’t have been further from the truth. Between 1940 and 1950 America’s Gross National Product mushroomed from $200,000 million to $300,000 million, while the resurgence of manufacturing helped the US to become a leading global power.
The GI Bill, instituted in 1944, included a number of beneficial measures for returning war veterans, which had knock-on economic benefits. These included affordable mortgages, which helped to kickstart a housing boom, and free tuition at colleges and training schools, which helped the workforce to become more skilled. As the US provided aid to European countries through the Marshall Plan, international markets for its goods were sustained, while a baby boom helped to increase the number of American consumers in the following decades.
To target western nations that had supported Israel during the Yom Kippur War, the Organization of Petroleum Exporting Countries (OPEC) decided to impose an oil embargo in October 1973. The nations it affected were the US, UK, Netherlands, Canada and Japan, with Portugal, South Africa and Rhodesia included later. The embargo caused chaos for oil-importing countries, which led the price of oil in the US to almost quadruple from $2.90 a barrel before the embargo to $11.65 a barrel in January 1974. It also triggered a recession for much of the western world between 1973 and 1975.
The US suddenly found itself mired by shortages and price hikes, with lines forming at gas stations. The government responded by introducing measures including a national speed limit, daylight saving time and rationing. To become more self-sufficient, efforts were made to increase domestic oil production and use alternative fuel sources. But America’s recovery from the shock was far from speedy, with the recession lasting until March 1975 and stagflation (persistent high inflation and unemployment) continuing throughout the decade, worsened by Nixon’s policies of raising import tariffs and removing the US from the gold standard in 1971.
The UK had already been struggling with food price hikes caused by global shortages, so when the oil crisis hit the price of petrol rocketed and inflation rose to more than 24%. However, the crisis ended up benefitting the UK oil industry, as offshore rigs in the North Sea were financed and Britain became a net exporter. The UK’s economic growth throughout the 1970s remained slow after the crisis, at only around half the rate of Germany and France.
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Many countries opted for rationing and electricity blackouts to cope with oil shortages. Denmark, which suddenly saw lines forming at gas stations, car bans and usage restrictions, ultimately used the price shock as an opportunity to shift away from fossil fuels. Prior to the 1973 crisis the country had relied on petroleum for 90% of its energy, with the majority coming from imports. So, in response to the crisis the government decided to push alternative sources including wood pellets, wind and solar power, later becoming the first country to build an offshore wind farm in 1991. Last year, more than half of the country’s energy came from renewable sources.
In 1979 the world saw another energy crisis following the Iranian Revolution, which saw crude oil prices nearly double to $40 per barrell in 12 months. This saw the US regulate distribution of oil, driving prices up, and countries look to alternative fuels. In the 1980s the effects of the 1973 and 1979 oil crises came full circle. The new-found energy efficiency of industrialised nations had reduced demand, which in turn led to oversupply and lowered oil prices – which was bad news for OPEC members. Kuwait, for example, slashed its production from almost 2 million barrels per day to just 600,000 barrels per day.
For Venezuela, the oil glut spelled trouble. Having ridden high on the oil price shocks of 1973 and 1979, the sudden price drop led to a 50% fall in production in Venezuela. The government attempted to improve its fortunes during the 1990s by encouraging foreign companies to drill the oil-rich Orinoco Belt, but another oil price collapse in 1998 hit the economy hard. Venezuela’s failure to diversify its economy away from oil has made it consistently vulnerable to price changes and the economic situation has gone from bad to worse since the 1980s.
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Saudi Arabia was also badly affected by the 1980s oil glut. It drastically reduced its output from more than 10 million barrels per day in 1980 to less than 2.5 million barrels per day in 1985-1986. When Riyadh changed tack in 1985, increasing output again and reducing prices, it initially caused a slump in markets but eventually aided the country’s economic recovery. Since then, the country has made moves to diversify its economy and reduce dependence on oil, with a recent plan unveiled to develop sectors including tourism, manufacturing and renewable energy.
The Great Recession, officially lasting between 2007-2009 in the US, was the longest period of economic decline since the 1930s. Kick-started by the subprime mortgage crisis of 2007, the Dow Jones Industrial Average lost more than half its value between the autumn of 2007 and the spring of 2009. To avert the crisis, the Obama government unveiled a $787 billion (£640bn) stimulus package in February 2009, which included tax cuts and investment in public services. It is debated whether these measures were effective in stimulating economic recovery.
Between April and June 2008, the UK’s economy began to decline, and from there it went into recession for five successive quarters, with GDP shrinking by more than 6% in that time. The UK’s economy took five years to return to the its pre-recession size. However, recovery was slower when it came to unemployment levels – it took until 2015 for unemployment to reach pre-recession levels. Moreover, real wages in 2018 were barely higher than in 2008.
Compared to the rest of the eurozone, Germany was something of a success story when it came to economic recovery from the recession. The export-oriented economy was helped by the weakening of the euro currency, which helped to make German goods more competitive in international market. Plus, government strategies focused on reducing hours instead of firing workers. As a result, in 2013 its youth unemployment rate was less than 8%, compared to the eurozone average of more than 30% and Spain and Greece’s averages of more than 50%.
Elsewhere in Europe, the impacts of recession were far more severe and longer lasting. In Greece, when the budget deficit exceeded 15% of GDP in 2009, it led to the collapse of its bond market. Subsequently, in 2010 the country was bailed out by the EU to the tune of €289 billion ($315bn/£252bn). The country put austerity measures in place, including cutting spending and increasing taxes, yet many have questioned their effectiveness. As of 2018, the Greek economy was 25% smaller than when the recession began.
Italy’s economy is heading towards a 6% contraction this year, with business investment down by 10%, according to Bloomberg. The government has attempted to address the issues caused by lockdown with a $27 billion (£22bn) stimulus package. “Italy came to the coronavirus pandemic in the worst possible shape, and the effects will be dramatic,” said Giuseppe Berta, a history professor at Bocconi University. It is possible that the country will become dependent on financial help from the EU to stay afloat.
At the time of writing JP Morgan forecasts that the US will have two quarters of GDP contraction, at rates of -10% and -25% respectively, while a similar fate is expected in the Eurozone (-15% and -22%). In March, the number of unemployed people in the US rose with a record 3.3 million people registering for unemployment benefits in the week ending 21 March. However, the recent interest rate cut and historic $2 trillion (£1.6tn) stimulus package should soften the blow, although many analysts are no longer predicting a fast 'V-shaped' recovery.
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