The Great Recession of 2009

BOSTON — For those paying attention to the global economic meltdown, this week started pleasantly enough.

On Monday, European Central Bank president Jean-Claude Trichet said the global downturn had bottomed out. The world economy was around the “inflection point,” he said, with some economies already turning higher.

“In all cases, we see a slowing down of the decrease in GDP,” Trichet beamed. “In certain cases, you see already a picking up.”

Trichet’s buoyancy was accompanied by a report from the Organization for Economic Cooperation (OECD), which noted a “pause” in the economic contractions of the U.K., France, Italy and China.

Two days later, there was even some hopeful news out of struggling Japan, the world’s second-largest economy. The country’s central bank governor, Masaaki Shirakawa, said the Japanese economy is showing signs of recovery and is expected to stabilize by the end of the year.

Throughout economic circles there was a sudden lightening of the doom and gloom that has darkened much of the world the past eight months.

Former IMF chief economist Simon Johnson and Peter Boone of the London School of Economics co-wrote a piece in The New York Times Economix blog that argued, in part, that “the restoration of confidence is due to a targeted and appropriately sized fiscal stimulus” by the Obama administration.

“This is a major achievement,” Johnson and Boone wrote. “We cannot emphasize enough how bad the world’s financial markets have looked at various points since September — including during the first month or so of President Obama’s administration. Market attitudes have changed profoundly since the beginning of March. It’s no longer ‘sell the collapse’ but much more ‘buy the dips’; this is the essential ingredient needed to stave off bank runs and to keep markets from spiraling downward in self-fulfilling collapse.”

So, as the end of the week approached, it felt almost OK to exhale. We’re not, apparently, going to fall into the financial abyss. Economic Armageddon is not — fingers crossed — upon us.

But by Friday, hard reality had returned, showing how far key economies have fallen and how far we have yet to go.

The most unpleasant reminder came from the same optimistic place where the week began: in Europe. The 16 economies that make up the so-called eurozone contracted at the fastest pace in 13 years, with combined GDP falling 2.5 percent in the first quarter, or a stunning 10 percent annualized rate.

That’s far worse than most economists were expecting, and underscored the severity of the problem in key economies across the region.

Germany, Europe’s economic engine, dropped 3.8 percent, its worst performance since data was first compiled in 1970. The German economy has plunged 7 percent over the past year.

Italy, meanwhile, fell 2.4 percent in the quarter, the most since record-keeping there began in 1980. Spain’s economy shrank by 1.8 percent. The French economy dropped 1.2 percent. Austria’s economy shrank, too. So did economic activity in the Netherlands.

That economic pain has spread eastward, as exports dry up and investment in these formerly communist states evaporates. Five eastern members of the EU suffered economic contraction in the quarter. Latvia’s annual GDP decline is a staggering 18 percent. Hungary and Romania both recorded drops of more than 6 percent.

Then, out of China Friday, we got another fresh jolt of pain.

Beijing's Ministry of Commerce warned that exports — which fell 22.6 percent in April from a year ago, the sixth straight monthly decline — will remain subdued in coming months. Domestic demand in China won’t rise fast enough to pick up that slack, the ministry warned.

So, as we continue to monitor this ongoing crisis, it’s one step forward, one step back. Confusion. A lack of clarity. And, also, a touch of hope.

Welcome to the Great Recession of 2009.

For more on the global economic crisis:Click here for the full report

Related columns by Thomas Mucha:

Reflections on the big, sick dog

The confidence game

China's economy: Pay attention to 7 little words