In recent weeks, the media has reported on the economic growth of countries in southern Europe surpassing those in the north, attributing this to better geostrategic positioning and recent macroeconomic management. However, economists suggest that long-term growth trends are not solely determined by growth rates during expansion cycles, but also by the frequency and intensity of contraction cycles. Research shows that improvements in living standards are more closely related to reducing the frequency and intensity of recessions rather than increasing growth rates. Countries with higher income levels tend to experience less frequent and less severe recessions, leading to overall higher growth rates.
Studies analyzing growth trends from 1950 to 2011 show that countries with over $20,000 per capita income experienced positive growth of 3.85% for 51 years, but lost 0.4% of growth due to recession years. Those with $10,000 to $20,000 income had a 20% frequency of crises and lost 0.9% in growth, offsetting their growth differential during expansions. This lack of convergence with more developed countries was also seen in countries with $5,000 to $10,000 income. Spain’s economic history illustrates the importance of considering the costs of recessions, as the country has had seven years of negative growth and 44 years of 3% growth on average, but the crises have cost the country in terms of GDP growth and stunted per capita income since 2007.
Economic theory suggests that to understand this behavior, one must look at changes in sector weights, productivity differentials, technological progress, human capital incorporation, demographic evolution, and institutional quality. Impacting these factors in the short term requires coherent planning and a commitment to structural reforms. In the short term, expectations may dominate effective and measurable change in these factors, making it crucial to focus on policies that mitigate weaknesses, promoting long-term growth and reducing the frequency and intensity of recessions.
Effective policies must focus on mitigating weaknesses for sustained growth, rather than relying solely on storytelling of a “crisis overcome.” Addressing both current challenges and preparing for the future is key in sustainable economic growth. It is important to avoid complacency and adopt policies aimed at promoting growth in the long term while reducing the likelihood of future recessions. By acknowledging both the positives and the challenges, countries can work towards a more stable and prosperous economic future.
