The Great Recession of 2008/09 delivered the worst blow to the global economy since the 1930s. But in a few nations, 2012 is turning out to be worse than 2009 in terms of economic growth. Europe’s debt crisis, the general slowing of the world economy, and domestic political troubles have played a role in undercutting 2012 growth for one or more of these four nations.
Global Fiscal Crisis
It’s no surprise that 2012 has turned out worse for Greece. It didn’t escape the 2009 downturn, the economy contracted by half a percentage point. But unlike most of the rest of the world, which rebounded the following year, Greece has continued to shrink — 5.4 percent last year and an estimated 5.2 percent this year, according to projections from the Organization for Economic Co-operation and Development (OECD).
In many ways, Greece is the poster child for the debt crisis that has gripped the European Union and a solemn warning to other nations stuck with rising government debt. An unsustainable debt load has caused interest rates on Greece’s sovereign debt to soar and forced it to seek a bailout and a debt restructuring. In return for the help, the European Union, the International Monetary Fund (IMF), and the European Central Bank have forced successive Greek governments to make huge and unpopular spending cuts, the latest one announced Aug. 1, 2012, for 11.5 billion euros ($14.1 billion). Even with the spending cuts and debt restructuring, Greece’s public coffers are nearly exhausted, its industries are uncompetitive, and its economy continues on a downward spiral.
“When the market takes a dim view of your prospects, that sends you down that spiral,” says Tu Packard, senior economist with Moody’s Analytics. “It’s punishing, really.”
The situation is so untenable that many analysts believe Greece will have to abandon the euro in the next year or two, create a new currency, and then immediately depreciate it to allow its workers to become competitive. But in the process, living standards of the Greek people would plunge.
While not foundering as badly as Greece, Portugal is also a bailout country with high debts and a shrinking economy. In the depths of the Great Recession, it’s economy shrank 2 percent. This year it’s on track to decline 3 percent, according to the OECD.
Still, Portugal is doing what other European nations wish Greece would do. It is taking the difficult steps to return to growth. It has cut its 2010 government deficit by half in 2011, cut government workers, and this year reduced public-sector pay by 14 percent, earning praise from the IMF for largely meeting its commitments to reform after receiving a bailout last year.