Economic growth in a time of even higher public debt in the European Union countries in the years of 2001-2015

Abstract

The aim of the study was to analyze the direction and the strength of the correlation between the average level of GDP growth (%) and the average level of general government debt (% GDP) in the EU countries within the 2001-2015 period. On the basis of the statistical analysis of data with the use of Pearson's and Spearman’s correlation coefficients and regression function, an international comparison was made with the use of the inductive reasoning methodology. The results show quite strong negative correlation between analyzed values, i.e. the higher government debt, the slower GDP growth over a long period of time (r=–0.72). In the case of EU15 countries the correlation was weaker before outbreak of the 2008 crisis and much more weaker than in the Central and Eastern European countries. It seems to be connected to risk underestimation during bull market periods observed in some countries, also in some high indebted EU15 countries. In turn of Central and Eastern European countries the correlation is much more weaker after 2008, what is in line with empirical results that indicate the importance of market expectations about the economy’s ability to return to growth path after shock.