I think trying to equate oil prices and GDP growth is too simplistic. GDP encompasses a wide set of variables and trying to simplify it down to to only energy, or worse, only oil, gives you an incomplete picture. During the decade of 1975 - 1985, energy costs averaged 11.6% of US GDP. And the US averaged 3.4% of annual GDP growth. If you want to see when energy prices were really putting a drag on the US economy check out 1980-81. Energy costs approached 14%! During the decade of 1990-1999, energy costs fell to 7.1% of GDP. US GDP growth also fell to 3.3%. Despite this cheaper energy, US GDP growth still fell. Thus something besides energy costs impacts GDP growth. For the decade of 2000-2010, energy costs rose to 7.8% of US GDP. That's less than a 1% increase. Far shy of the energy costs of 1975-1985 which were over 11%.
Energy Consumption, Expenditures, and Emissions Indicators Estimates, Selected Years, 1949-2011US Real GDP Growth Rate by YearPstarr wrote:But Greece like all the PIIGS cratered in 2008. That was/is peak oil.
The epicenter of the great recession was not the PIIGS, it was the US. The flash point was in the financial sector. Then it spread to main street. Then to the rest of the globe.
The financial crisis (Wall Street) spread to the real economy (Main Street). While the recession became noticeable in late 2008, it actually started much earlier. The recession began in the housing market. This is a common feature of post-WWII US recessions. Residential investment posted a 22.8% decline in the fourth quarter of 2008 and a 32.8% decline in the first quarter of 2009. The decline in the housing market spilled over into the labor market in late 2007.
Why is the current recession longer and deeper than the norm? Part of this is illusory. The recessions in 1990 and 2001 were unusually mild, and the last major recession was in 1984. This implies that anyone under the age of about 45 has no memory of a serious recession.
That said, we can identify two reasons for the severity of this recession. The first is that the recession was caused by the financial crisis. Since all businesses. need financing to operate, the recession was not concentrated in one sector of the economy, but was felt by nearly all.
Another reason for the long recession is the long recession. In other words, there are negative feedback mechanisms (“vicious circles”) that make things worse over time. For each of the last two recessions (1990 and 2001), the recession was over before people even knew for sure we were in it. As a result, there was little opportunity for the negative feedback effects to occur. In the current recession, the financial crisis was so public and traumatic, and the government response so dramatic that by late 2007 consumers appeared to be very aware of the precarious nature of the economy. In response, they drastically cut back on their spending.
The US RecessionThe global economy was ripe for panic due to historically unprecedented economic integration, tight credit, limited scope for monetary policy and limited room for fiscal policy due to high debt levels.
While the recent financial crisis originated in the US, in 2008-09 we witnessed a steep decline in output, consumption and investment that was of similar magnitude in the rest of the world. This evolution is surprising from a historical perspective, since we have never observed such close business cycle co-movements. Both the Great Depression and post WWII recessions witnessed far weaker co-movement of business cycles across countries.
In 2008-09 the world economy was ripe for a panic
There were also several factors that made the global economy more sensitive to a global panic:
* First, credit was tighter due to the financial crisis, making firms more vulnerable when hit with lower demand and lower profits.
* Second, there was limited scope for monetary policy as interest rates were already approaching the zero lower bound.
* Third, there were constraints on countercyclical fiscal policy due to increasing debt levels and new fiscal rules.
* Fourth, economic integration, although incomplete, had substantially increased in previous decades.
Explaining the global Great Recession
The oil barrel is half-full.