Thu, Apr 11, 2002 page21

• IMF report sets out to debunk recession myths

  THE WORLD ECONOMY The synchronized world slowdown characterizing the most recent pullback differs little from previous economic contractions, IMF researchers contend

  • AFP
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  Despite all the fretting about a new style of synchronized world slowdown, the global economy is actually on a well-worn path dating back to the 1890s, the IMF said Tuesday.

  Seeking to put the global deceleration in context, the IMF analysis scotches many widely-held beliefs about the unique nature of the current cycle.

  "Contrary to the impression one gets from much of the public discussion, the tendency of recessions in one country to occur at the same time as recessions in other countries -- synchronization -- has been a persistent feature of the historical record," it said.

  The IMF analysis is contained within its World Economic Outlook, a report scheduled for release in its entirety on April 18, two days before a semi-annual gathering here of the IMF and World Bank.

  The IMF released the analytical section in advance, saying it was frustrated that months of scholarly work in the semi-annual report were often skipped over by journalists.

  The report's highlight -- the latest IMF world economic growth forecasts -- remains under wraps.

  But the analysis does shed a new historical light on the nature of the worldwide slowdown, which some commentators have described as being of a unique, globalized nature. "Since the late 19th century, most recessions have been synchronized," the IMF said.

  Before World War I, the global economy turned down in the early 1890s, the early 1900s and 1907-8; between the wars it headed south again in 1920-21 and the Great Depression of 1929-1933.

  And in recent decades, the world suffered widespread slowdowns in the mid-1970s, the early 1980s and the early 1990s.

  In fact, recessions were becoming more synchronized over time, it said. IMF experts -- James Morsink, Thomas Helbing and Stephen Tokarick -- also scoffed at suggestions that the key role played by shrinking investment in the current slowdown marked a return to 19-century style recessions.

  "The role of investment in recessions has, if anything, increased over time," their report said.

  Almost all recessions since 1972 had been accompanied by a contraction in investment, compared to about 60 percent before World War II, the analysis said.

  Over the same time period, deflation had almost been eradicated from the modern economic map, it said.

  "About 40 percent of recessions before World War II were accompanied by deflation but only one -- Japan in the late 1990s -- since then," the IMF said.

  Examining 93 business cycles since 1973, the analysts said a typical modern cycle lasts six years.

  It starts with a one-year recession in which output falls slightly less than 3 percent, followed by a five-year expansion period with growth of a little more than 3 percent a year.

  "Hence, despite the initial recession, the level of output at the end of a cycle is about 14 percent higher than at the beginning."

  Business cycles have become longer and shallower over time, it said. More surprisingly, perhaps, the speed of an economic recovery does not appear to depend on the depth of the recession.

  "In other words, output does not on average recover significantly more quickly after a short and mild recession than after a medium-length and moderate recession."

  The IMF report debunked many suppositions about the world slowdown, IMF economic counsellor and research department director Kenneth Rogoff told reporters.

  "Many people have written that the current recession is very different from past recessions, different because of the synchronicity, different because of the drop in business investment, etcetera, etcetera," he said.

  For your information

  Facts and fantasy

  * The tendency of recessions in one country to occur at the same time as recessions in other countries, or synchronization, has been a persistent feature of the historical record, IMF researcher say. Analysts had said the last recession was unique because it was a synchronized pullback.

  * The speed of an economic recovery does not appear to depend on the depth of the recession. Analysts have been hoping for a quick recovery because the last recession was mild.
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