Economic Performance: The Long and Short of It

Is the economy performing well? Corporate failures abound. Is the economy performing poorly? No recession is in evidence. Economics is principally concerned with prices and quantities, and when examining performance, the focus is predominantly on quantities. The analysis of macroeconomic quantities may be divided into long-term and short-term perspectives, thereby constituting the two principal domains of macroeconomic inquiry.

This concept proves difficult to comprehend in abstract terms, yet becomes evident upon examination of empirical data. The accompanying chart presents the annual percentage change in quarterly real GDP (a quantity indicator) for the United States, Europe (the eurozone rather than the European Union), the United Kingdom and Japan, together with their respective 30-year averages (eurozone data being available only from 1996 onwards). Long-term performance may be observed through the relative magnitudes of these averages: the United States at 2.5 per cent, the United Kingdom at 2.0 per cent, Europe at 1.5 per cent, and Japan at less than 1.0 per cent — the hierarchy is immediately discernible. Short-term dynamics are manifest in the trajectory lines, with all four economies experiencing contractions in 2008 and 2020, and demonstrating robust performance in 2005 and 2015, exhibiting synchronised fluctuations.

Published by:

KC Law (Economist)

Law Ka Chung is a Hong Kong economist and financial columnist.