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There’s nothing special about zero growth


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The FT has a new piece on the growth prospects for Europe:

The eurozone will avoid a recession this year according to a widely-watched survey of economists which illustrates the sharp about-turn in global economic sentiment in the past couple of weeks.

As recently as last month, analysts surveyed by Consensus Economics were predicting the bloc would plunge into recession this year. But this month’s survey found that they now expect it to log growth of 0.1 per cent over the course of 2023.

But the accompanying graph doesn’t show any sort of “sharp about-turn”:

Unfortunately, the graph is a bit hard to read. But notice that projected eurozone growth has merely edged up from about negative 0.1% to positive 0.1% over the past month or two.

AFAIK, the eurozone has no NBER to make an official recession call. (Is that right?) In addition, whereas the US has no borderline recessions, Europe does. In that case, I think it’s a mistake to focus on whether or not Europe experiences a recession this year. There’s no meaningful difference between minus 0.1% and positive 0.1%. For business cycle purposes, we should focus on the eurozone unemployment rate, not RGDP. Will there be a sharp increase in unemployment?

The US case is far more interesting. We’ve never had a mini-recession. So in 2023, we’ll either have no recession, our first ever mini-recession, or a significant recession. Any of those three outcomes would be quite interesting.

It’s better for the world if macro is boring, but it’s better for me if it’s interesting. And 2023 will be quite interesting.

PS. I define mini-recession as a rise in the unemployment rate of between 100 and 200 basis points. In the past, it either rose by more than 2% or less than 1%. Never in between 1.0% and 2.0%.

PPS. There’s a lot of talk about how inflation is coming down. But the inflation rate that matters is wage inflation, and progress there has been much more modest. A soft landing is still possible, but it won’t be easy.


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