Early 1990s recession facts for kids

The early 1990s recession was a time when the economies of many countries, especially in the Western world, slowed down a lot. It was like a big economic slump that affected people's jobs and how much money they had. This period had a big impact on politics and daily life in many places.

It's believed that several things caused this recession:

• Central banks (like a country's main bank) made it harder to borrow money to try and stop prices from rising too fast.
• The price of oil suddenly went up in 1990, which made people and businesses less confident about spending money.
• The end of the Cold War meant less money was spent on defense.
• There was a problem with banks called the savings and loan crisis.
• Too many office buildings were built in the 1980s, leading to a slump in construction.

By 1993, the US economy started growing again, and by 1994, the global economy was also improving.

How the Recession Affected North America

United States

In the United States, the recession played a part in Bill Clinton winning the 1992 presidential election against the sitting president, George H. W. Bush.

Canada

Canada's economy was in a recession for two full years, from April 1990 to April 1992. This recession started earlier and was deeper than in the US. This was partly because the Bank of Canada raised interest rates very high to control rising prices.

The economy started to slow down in 1989. In April 1990, jobs and economic activity began to drop a lot. Even though the economy bounced back a little in mid-1991, jobs kept falling. It wasn't until April 1992 that jobs started to increase again, marking the end of the recession. However, unemployment stayed high until early 1994, leading some to call it a "jobless recovery."

Why Canada's Economy Slowed Down

A main reason for the recession in Canada was rising prices, called inflation. The Bank of Canada tried to stop inflation by raising its main interest rate. This made it more expensive to borrow money. People and businesses then spent less and saved more. This especially hurt the housing market and construction.

In 1991, the Bank of Canada set a goal to keep inflation at 3%. They managed to lower inflation even more than planned. This might have slowed down the economy's recovery in 1992 and 1993.

The Canadian government also increased taxes between 1989 and 1991. These tax increases on sales and payroll also slowed down the economy. However, if they hadn't raised taxes, the country's debt would have grown much larger. The weaker US economy also played a small role in Canada's slowdown.

Strong Canadian Dollar and Low Productivity

Another reason for Canada's deeper and longer recession was the high value of the Canadian dollar. In 1991, it was worth 86 US cents. This made Canadian goods, like car parts and textiles, more expensive for other countries to buy.

At the same time, Canada's factories weren't as efficient as those in other rich countries. This was due to a lack of investment in new machines and research. When Canada also removed some trade protection with the US, many factories closed or moved to other countries, causing many job losses.

Impact on Jobs

The recession hit jobs hard across Canada. The unemployment rate went from 7.2% in October 1989 to a high of 12.1% in November 1992. It took 10 years for unemployment to return to the 7.2% level. For example, in Montreal, 16.7% of people looking for work couldn't find jobs by December 1992. Also, more families needed welfare.

The recession was especially tough on jobs in Ontario. The percentage of people aged 15-64 who had jobs in Ontario dropped for five years straight.

How It Compared to the Early 1980s Recession

Experts classify recessions by how bad they are. The early 1990s recession in Canada was a "Category 4" recession, which is very serious. It was similar to the early 1980s recession. While the early 1990s recession wasn't as deep, it lasted longer. It also caused the amount of money earned per person to decrease, which didn't happen in the early 1980s recession. Some people even called it "the Great Canadian Slump of 1990–92."

How the Recession Affected Western Europe

Finland

Finland faced a very serious economic depression from 1990 to 1993. In the 1980s, banks were allowed to lend money more freely, and people could borrow from other countries. This led to a boom where people borrowed a lot, and prices for things like houses went way up.

Then, the collapse of the Soviet Union in 1991 caused Finland's trade with Russia to drop by 70%. Finland had to lower the value of its money, which made it harder for people and businesses to pay back their foreign loans. Banks also became stricter, lending less money, and prices for assets dropped by half. All these things led to a big drop in spending and many businesses going bankrupt. Banks also got into trouble.

About 15% of companies closed, the country's total economic output (GDP) shrank by about 14%, and unemployment jumped from 3% to almost 20% in just four years. Finland's recovery was based on selling more goods to other countries after its currency was devalued.

France

France entered the recession later than English-speaking countries, around late 1992 and early 1993. The economy had been slowing since late 1989, partly because other countries were buying less from France. The Gulf War made things worse.

In 1993, France's total economic output (GDP) actually shrank by 0.9%, which was the first time since 1975. Factories and construction companies were hit hard. People spent less, and businesses invested less. This led to a big increase in unemployment and the government spending more than it collected in taxes.

Sweden

United Kingdom

The British economy kept growing until late 1990, but then it went into recession until early 1993. The Conservative government, led by John Major after Margaret Thatcher resigned, managed to win the 1992 election despite the economic troubles.

Political Changes Due to the Recession

Canada and the United States

The recession made it hard for leaders like Brian Mulroney in Canada and George H. W. Bush in the United States to stay in power. Both faced challenges from politicians who promised to fix the economy.

President Bush was very popular after the successful Persian Gulf War, but this faded as the recession got worse. His promise not to raise taxes, which he later broke, hurt his chances for re-election in 1992.

In Canada, Prime Minister Mulroney became very unpopular. He resigned in 1993, and his party lost almost all its seats in the election that year.

Australia

In Australia, the Treasurer, Paul Keating, famously said it was "the recession that Australia had to have." This quote was used by the opposition party to criticize the government's handling of the economy. However, the ruling Labor Party still won the 1993 election.

New Zealand

In New Zealand, the recession happened after the re-election of the Labour government. The economic changes made during the recession caused big disagreements between the Prime Minister, David Lange, and the Minister of Finance, Roger Douglas. Douglas wanted more changes, but Lange wanted to stop. This led to Lange resigning. Labour then lost the 1990 election by a lot, and the new government continued with Douglas's economic changes.

France

The recession and some scandals weakened the Socialist Party in France. They lost many local elections in 1992 and then suffered a huge defeat in the 1993 national elections. A right-wing group won a very large majority of seats.

How the Recession Changed Culture

In the United States, more people started shopping at discount stores during the recession. This meant stores like Kmart and Walmart (which became the biggest retailer in 1989) started selling more than older, traditional stores like Sears.

Social Unrest

In the United Kingdom, there were many riots in 1991 when the recession was at its worst. High unemployment and general unhappiness were seen as major reasons for these disturbances. Areas affected were often poor communities with high unemployment, like Handsworth in Birmingham and Meadow Well on Tyneside.

See also

• Early 1980s recession
• Savings and loan crisis
• Credit crunch
• Gulf War
• List of recessions in the United States
• Lost Decade (Japan)