Joseph S Tracy: A strategy for the 2011 economic recovery Remarks by Mr Joseph S Tracy, Executive Vice President of the Federal Reserve Bank of New York, at Dominican College, Orangeburg, New York, 28 January 2011. *  *  *  Good morning. It is a pleasure to be with you this morning to look back on the tremendous events impacting the economy over the past several years, and to assess the outlook for the economy going forward. Let me note that the views that I will discuss with you are my own and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System. On September 20, 2010, the National Bureau of Economic Research (NBER) determined that the “Great Recession” officially ended in June 2009. The Great Recession did not earn its moniker due to its length. At 18 months, the length of the Great Recession was only slightly longer than the average of 17.5 months for the 33 recessions tracked by the NBER since 1857. In fact, the longest recession was 65 months and lasted from October 1873 to March 1879. The Great Recession distinguished itself from earlier recessions in terms of its severity rather than its length. There was a decline in real output relative to trend of $ trillion or 8 percent (Chart 1). This contraction brought the level of real output back to its level in 2006. In most recessions, consumption growth slows but remains positive.
Favourable labour market conditions, as reflected in a further decrease in unemployment since late 2018, and a dynamic, albeit gradually normalising housing market, should continue to support household income and private consumption. Moreover, growth in government consumption will remain elevated, as Government is expected to use some of its fiscal space, while investment is expected to maintain a high share in GDP, reflecting the substantial upgrade to Malta’s infrastructure. Nevertheless, growth is set to moderate compared with 2018, reflecting two main factors. Firstly, given the less favourable external environment, we foresee lower contributions from exports. Secondly, it is to be expected that an economy that has been growing very fast to gradually return to rates that are more in line with its long-term growth. The balance of risks is tilted to the downside. This mainly reflects the risk that economic conditions abroad deteriorate further, in which case the recent slowdown in some of our closest trading partners could develop into a more severe downturn, limiting the expansion in our exports. These risks are seen as more elevated than the upside risks associated with domestic factors. For example, the labour market’s resilience and strong liquidity position of households could be reflected in higher than expected private consumption. Government expenditure could also surprise on the upside. Indeed, Malta is one of few countries in the euro area which has the fiscal space necessary to mitigate the effects of weaker foreign demand. Ideally Government should utilise this space to enhance the economy’s capital stock and potential growth.