Monday, August 29, 2011

Lost Growth: How Deep a Hole Are We In?

The Economist is always a source of interesting data, interestingly presented. It takes note of the concern over the recent decline in growth rates and suggests a longer look at the situation. It wishes to answer the question as to which of the developed countries fared best and worst during the economic crisis? It argues that the appropriate measure of GDP for comparison is GDP per capita. A country like the US has a population that grows about 1% per year. It would have to grow at the 1% level to break even by this measure. Other countries have stagnant or shrinking populations. They provide this graphic:

The bright blue lines represent observed growth (per person). Germany looks like the clear winner with net positive gain in GDP since the crisis hit in 2007. Canada sits solidly in second place, while the US does not too badly in fourth. Not everyone was a loser during this period.

“In contrast, China’s GDP per person rose by an impressive 35% in the same period and India’s was up by 22%.”

The article maintains that an appropriate index of pain is represented by the dark blue lines. Average growth in the ten years prior to 2007 is extrapolated forward to the present as if the Great Recession never occurred. The difference between this extrapolated number for GDP and the current actual number is what might be referred to as lost growth. By this measure, Britain is clearly the country hit hardest. The US is second last, barely edging out Italy for this dubious honor. Even Germany is in the hole from this perspective.

The US saw GDP growth “climb” to the 1% level during the last quarter. Now we have to consider that as even worse than we thought. Sigh....

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