One of the pleasures of the economic’s course is teaching the trade or economic cycle – the ups and downs and the four distinct stages – boom (peak), recession, slump (trough) and recovery. Is there any validity to this simple approach or should we be more sophisticated? Evidence came out over the last few days of a stalling in the German recovery after hopes that Europe was climbing out of recession. Germany has hit the buffers after relatively strong growth in the second and third quarters – its performance then may have been over-dependent on stimulus measures such as the car scrappage scheme, which has now been withdrawn. Analysts were surprised by the figures, with the majority expecting modest growth in the last three months of the year.
Indeed the German economy failed to grow at all in the last three months of the year, with GDP unchanged compared with the previous quarter. Figures also showed the eurozone economy grew 0.1% in the same quarter, represents a slowdown in the economies of the 16-nation zone, which grew by 0.4% between July and September last year. Official first estimates indicated that the Italian economy shrank by 0.2% after growing by 0.6% in the previous quarter. They also showed that Spain and Greece remained in recession, with the Greek economy contracting by 0.8%. Double-dip recession is the fear, a phenomena which certainly complicates the teaching of the trade cycle and makes the selection of economic policies to deal with the downturn more complicated.
