Comparing European and U.S. Recovery Speeds

Statements that one large economy will recover faster than another can be useful forecasts. They are not self-defining. Output, employment, household income, and productivity can reach their earlier levels at different times.

This page replaces no former article. It gives a new method for checking a comparison once published data are available.

Choose the finish line

A recovery can mean several things:

• real GDP returns to its previous peak;
• real GDP per person returns to its previous peak;
• employment or hours worked recover;
• household real income recovers; or
• the economy returns to its earlier trend, not only its earlier level.

The chosen finish line can reverse the ranking. Population growth can support aggregate output while output per person lags. Employment can recover while hours or real wages do not.

Control the starting point

Base effects are large after a deep contraction. A fast growth rate from a lower trough does not necessarily close the total gap first. Index both regions to a common pre-crisis quarter and show the path of the level.

Also record whether “Europe” means the euro area, the European Union, or a set of selected countries. The geographic boundary must stay fixed across the series.

Keep forecast and observation apart

Forecasts reflect assumptions about fiscal support, monetary conditions, energy prices, trade, health conditions, and private demand. Actual data can later be revised. Store the forecast vintage and its assumptions beside the observed series.

The IMF World Economic Outlook, OECD Economic Outlook, and national or regional statistical agencies provide documented forecast and outcome series. Do not combine their numbers until definitions and units match.

Report a scorecard, not a race

A strong comparison can show separate rows for aggregate output, output per person, employment, hours, and real household income. Add the pre-crisis base date and latest release date to each row.

The result can reasonably say that one region led on one measure while another led on a different measure. That is more informative than forcing all recovery evidence into one winner.