The US economic recovery has been slow. Using a combination of narrative evidence and revisions in economic forecasts, the authors establish a circumstantial case that the coincidental financial shocks in Europe also played a major role in slowing down the already slow US economic recovery.
The authors’ goal is to add to the literature on the slow recovery from the Great Recession, which began in 2008. In particular, they document the role that successive financial shocks occurring in Europe had in delaying the recovery in the United States.
How Is This Article Useful to Practitioners?
The slow recovery from recessions has been a feature of US economic recoveries since the 1990s. The Great Recession has not been an exception; four years after the trough, the growth rate has remained below the trend path. The slow recovery from the Great Recession is rooted in domestic financial and fiscal impediments to growth. The authors believe that the continued unfolding of joint financial/fiscal crises internationally made the halting recovery even slower than initially predicted.
They discuss the narrative evidence that documents the role of Europe in the protracted and ongoing financial/fiscal crisis. By examining economic forecasts and their revisions and combining them with the narrative evidence, the authors establish a circumstantial case that the financial/fiscal shocks from Europe have played an important role since 2010 in the downward revision of the outlook for recovery in the United States.
They gather the narrative data from financial media reports and policy announcements provided on US and European government websites. They also examine the US Survey of Professional Forecasters, the European Central Bank Survey of Professional Forecasters, and the IMF World Economic Outlook forecasts for economic forecasts and their subsequent revisions.
The authors discuss the slow economic recovery in the United States from the perspective of international crises and present evidence that supposedly shows that the European debt crisis was also responsible for slowing the US recovery. The conclusion drawn by the authors is based on circumstantial evidence, and the article lacks quantitative evidence of the impact international crises might have had on slowing the US recovery. This topic could be the subject of future studies. The authors do provide a preliminary understanding of the effect international crises could have had on slowing the US recovery and also draw attention to the fact that external and domestic factors play a critical role in shaping economic growth in the globalized world.