The depression after the recession

BRAZIL ECONOMICS - Report 17 May 2019 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The dating of economic cycles in Brazil is carried out by the Committee for Dating Economic Cycles (CODACE), which has pinned down the start and finish of all cycles since 1980. It is customary to measure the magnitude of recessions by the distance between the peak and valley in the phase of falling GDP – the recession. Likewise, it is usual to gauge the intensity of the recovery by the number of quarters it takes for GDP to return to the previous peak, as of the moment defined as the end of the recession. Although very intense, the recession of the current cycle has not been the deepest of all those dated by CODACE, but the recovery has unquestionably been the slowest.

Another interesting statistic is how much each country citizen loses in terms of per capita income since the start of the recession. By this metric, this cycle is unprecedented. Since GDP only expanded by 1.1% in both 2017 and 2018, and population has been growing by 0.8% a year, per capita income growth in the previous two years was insignificant, and in the fourth quarter of 2018 per capita income was 8% below the level just before the start of the recession. Even worse, if GDP in 2019 grows by about (or slightly less than) 1%, which is probable, per capita income at the end of this year will be at the same level as at the end of 2018. With per capita income for three straight years sitting 8% below the previous peak, the only word for the current situation is depression, hence the title of this report.

In this work we analyze other Brazilian recessions before the existence of quarterly GDP data and dating by CODACE. Then we carefully evaluate other recessive episodes in the world, relying on the work of Carmen Reinhart together with Kenneth Rogoff, Christoph Trebesch and Vincent Reinhart. Although there have been deeper recessions than the Brazilian (all associated with cases of systemic banking crises), the current cycle in Brazil is more severe than the others.

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