James Bullard

English

Research Papers in Economics

NationalEconomicTrends
January 2002
Stag-nations
Economic growth in the United States has slowed
substantially since the days of rapid expansion during the
mid to late 1990s. According to preliminary estimates,
growth in real gross domestic product (GDP) turned nega-
tive in the third quarter of 2001 and is projected to return
slowly to its previous pace during 2002. Observers of
the U.S. economy sometimes argue that deteriorating
economic performance abroad is a risk in the current
downturn. If the economic downturn were limited to the
U.S., continued demand for U.S. exports abroad might be
expected to help stabilize American income and employ-
ment. But, unfortunately, the world’s three largest econ-
omies appear to be slumping simultaneously. Is this a
problem inhibiting U.S. economic recovery?
The Figure shows growth rates of real GDP in the
U.S., Japan, and Europe from the first quarter of 1996
through the fourth quarter of 2001. (Europe is defined
as the unified GDP of the countries in the Euro zone as
of 1999.) To reduce clutter, the data are smoothed by
taking a five-quarter centered moving average of annual-
ized percentage growth rates. For observations near the
end of the period and into 2002 that are not yet available,
forecasts from the Blue Chip Economic Indicators were
used for the U.S., and forecasts from the OECD Economic
Outlook were used for Europe and Japan.
Of the big three, the U.S. has been the best performer
during most of the period, with average rates of growth
exceeding 4 percent during much of the late 1990s. How-
ever, average growth rates have fallen sharply since the
second half of 2000. Japan has been the worst-performing
economy according to these data, with growth generally
slow and often negative. The worst outcomes for Japan
occurred during the Asian currency crisis in 1997 and
1998. After recovering during 1999 and 2000, Japan has
again moved into recession.  Europe has been a less vola-
tile performer. But, since average rates of growth peaked
in late 1999 and early 2000, European growth has slowed
as well. Thus, the world’s three largest economies are
slowing simultaneously for the first time in recent memory.
The synchronized nature of this downturn may be less
grave than some contend, however. It is true that U.S.
firms will be able to sell fewer goods and services to
foreign buyers if foreign economies are slumping, but
the U.S. is still a relatively closed economy. Even after
the dramatic expansion of trade associated with “global-
ization” in the 1990s, the U.S. export-to-GDP ratio was
about 12 percent as of 2000. Thus, the cross-border trade
effects are small relative to domestic economic activity.
For this reason, the fact that the big three economies are
slumping together is less of a concern.
—James Bullard
Views expressed do not necessarily reflect official positions of the Federal Reserve System.
www.stls.frb.org/research
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Stag-nations
Real GDP Growth, Major Economies, Five-Quarter Centered 
Moving Average
Japan
Europe
USA
SOURCES: Haver Analytics, Blue Chip Economic Indicators, and OECD Economic 
Outlook.

Stag-nations

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