Economic Stagnation: What Causes Slowdowns Of Economy Growth?

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Economic stagnation is a prolonged period of slow economic growth often accompanied by high rates of unemployment. When growth decelerates, you get a recipe for recession.

Also called immobilism, stagnation is measured in terms of GDP growth — or more accurately, lack thereof. In such a state, GDP, profits, and most incomes see little growth, yet bankruptcies and unemployment experience an uptick.

Economists say the United States has been experiencing stagnation since the 2009 financial crisis. Japan is similarly seeing economic decline, while EU nations have undergone what The Economist calls cyclical stagnation, contributing to an even slower recovery than the U.S.

Reasons for economic slowdown

It’s simple to observe economic slowdown, but much more difficult to get to the root of the problem. Economists have various theories meant to explain stagnation.

[contextly_auto_sidebar id=”JKhNxGnkuWMvz5mUFw6gllYuJWQGxqZc”]Such hypotheses include:

Secular Stagnation: First used to describe the Great Depression, this theory states that the lack of forces like significant population growth, game-changing innovation, terrestrial expansion, or a major war, has resulted in long-term stagnation for the U.S. and other advanced economies.

Limits to Growth: This theory says there are fundamental limits, ecologically, to economic growth — meaning human existence and resource distribution is only sustainable if the economy slows and stagnates after a certain point.

Technological slowdown: This theory posits that a slowdown in the rate and impact of technological advances correlates with a resulting slowdown in economic progress.

Economic Inequality: Others purport that it’s the growing wealth disparity that halts economic growth. When a majority of wealth is controlled by a small portion of a population, wages and consumer buying power suffer, as does the economy at large.

What will happen?

Currently, the United States’ GDP is predicted to grow at a rate or 2 – 2.5 percent through the rest of the decade, however polarized such growth may be.

In Europe, things are a bit more complex. Nine countries were in recession in 2013, and the Euro zone is predicted to grow just 1 – 1.5 percent in its fragile recovery.

Germany, once seen as the economic engine of the EU, reduced its economic growth projections to 1.3 percent for 2015.

Japan’s stagnation, which is a result of a variety of factors, has resulted in very minimal growth over the past 20 years. Government borrowing, used to prop up the nation’s GDP, resulted in a more hallowed economy that will be difficult to amend.

Whatever the reasons for stagnation, which can also be observed at differing rates in other countries worldwide, solutions that reach to the root of such problems may be few and far between. For now, some of the world’s largest economies are simply focusing on staying afloat.

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Jennifer Markert