Seeing that it has been a few quarters since last updating our international comparisons, plus the preliminary European GDP figures were released today, the following graphs compare GDP and employment across both major economies and peripheral European countries. These graphs show percentage changes in these measures, relative to 2008q1. The GDP data is through 2012q3 while the majority of the employment data is only through 2012q2.
First up are the real GDP changes across major economies in recent years. There are a few trends that stand out. First, Germany and the U.S. have both clearly surpassed previous peak GDP levels. Second, the majority of European countries are slowing down at best, or continuing to contract. The Eurozone GDP figures overall have fallen in 3 out of the past 4 quarters with the 1 non-negative quarter showing 0% growth. This pattern masks the true trends of the regions largest economy – Germany – growing slowly and steadily, not unlike the U.S. and the region’s second largest economy – France – stagnating, effectively, for the past year and a half. The end result is that the rest of the Eurozone is contracting, which we will discuss a bit further below. Third, the U.K. returned to growth in the third quarter, however remains about 3% below pre-recession levels. Fourth, Japan’s economy is contracting again for the third time in the past 4 years. There was the initial downturn as part of the global financial crisis, from which Japanese GDP rebounded strongly as demand for its manufacturers returned and international trade regained much of the recessionary losses. The second contraction was due to the devastating earthquake in early 2011, however by the second half of 2011 and into early 2012, the economy began expanding once again, prior to this latest setback in economic growth.
In terms of employment, the countries have undergone different experiences in recent years. Germany has not only actually added jobs, but the gains are a little more than 4%. Germany’s growth is in part due to its work-sharing program (Kurzarbeit) where employees are not laid off, however their hours are reduced with some government support filling in the lost wages. France and the United Kingdom have both nearly regained all their recessionary employment losses, while Japan continues to hold steady on the employment front even with the economic fluctuations in recent years. Overall, the U.S. is by far the worst performer across major economies in terms of employment. While some of the loss was certainly due to our more flexible labor markets and the fact that the U.S. was the epicenter of the financial crisis (both in terms of the underlying mortgages and construction boom but also being a major financial hub), the fact that the U.S. lost significantly more jobs is certainly a topic worth further research.
One other major economy not shown in the graphs above is Canada. Canada continues to outperform all other major economies over the business cycle. Both GDP and employment continue to hit new historical highs with each passing quarter. Part of the country’s strength was due to its tighter financial regulations that ultimately meant that the country’s banks were in much stronger positions during the financial crisis and did not issue nearly as many sub-prime mortgages as its southern neighbor. Canada also did not experience a massive housing bubble and bust which aids the economy as well and home prices and new construction continue to increase in the country. Finally, another benefiting factor for the Canadian economy is higher commodity prices and increased production for the natural resource rich country.
The third graph shows real GDP changes for peripheral European countries, or the so-called GIPSI countries – Greece, Italy, Portugal, Spain and Ireland. Clearly the peripheral European economies suffered much more severe recessions and are struggling to recovery (if at all). Ireland’s GDP has held relatively steady over the past year or so, however it still remains over 6% below 2008q1 levels. The other peripheral countries have continued to see economic contractions with Greece being the most severe.
Just as their economies continue to struggle, employment in these countries has largely yet to stabilize or recover. Italian employment has stopped contracting and even grew slightly in 2010. Portugal’s labor market was showing some signs of stabilization a year ago, however those proved false signals and the country has now shed 10% of its jobs since early 2008. Losses in Greece, Spain and Ireland continue unabated, which leads to very high unemployment rates of 25%, 24% and 15%, respectively, in 2012q2.
Overall, it is interesting to note the differences in economic performance during and after the Great Recession across the international community. In particular, the dichotomy in U.S. GDP versus U.S. employment is striking. While U.S. GDP has outperformed most other economies, U.S. employment looks a little more similar to peripheral Europe than it does to most other major economies. Now, the recent labor market news in America is certainly encouraging, however we have a much larger gap to recover than the other major economies.