GDP is often used as an indicator of the increase in a country’s standard of living or prosperity. The numbers are adjusted to remove the effect of inflation on the prices of goods and services produced.
Among Canada’s peer countries, Canada ranked in 12th place in 2008, earning a “B” grade. Its real GDP growth rate was 0.5 per cent. The #1 country—Australia—recorded a growth rate of 1.6 percentage points above Canada’s.
GDP grew more strongly in 2008 in the U.S. than in Canada, although the contraction in the fourth quarter of 2008 was more severe in the United States.
What a difference a year makes! Between 1994 and 2007, Ireland had the highest annual GDP growth rate among the 17 comparator countries. In 2008, the Irish economy contracted by 2.7 per cent. Ireland is reeling from the global economic crisis and a meltdown in its domestic property market and construction sector. Ireland became the first EU country to fall into a recession in 2008.
Ireland’s fall from grace, however, should not detract from the real gains that it has made in its standard of living. In the 1970s, Ireland’s level of income per capita was the lowest among the peer countries. In the 1990s, however, its economy was ignited by foreign investment in high-tech industries. Ireland thus transformed itself from one of the poorest countries in western Europe to one of the wealthiest.
Up until Ireland’s plunge to last place in 2008, Japan had been subject to the most extreme shifts in economic fortune over the past two decades. In 1988, Japan’s GDP growth was 6.8 per cent. That same year, the Tokyo Stock Exchange briefly surpassed the New York Stock Exchange to become the largest in the world based on its total market capitalization. Land and house prices skyrocketed in Japan.
The 1990s opened with a collapse in stock prices. Economic activity stagnated through the first half of the decade. Recovery appeared to be occurring in 1996, but Japan’s economy lurched into a stubborn and protracted recession from which it has not yet convincingly emerged. Decades of business, political, and social relationships unravelled in Japan during the 1990s.
What brought about this dramatic reversal of fortune? Post-war Japanese industrial strategy relied heavily on strong inter-corporate linkages. The collapse of stock prices early in the 1990s revealed that cross-holdings of equities had overstated the balance-sheet strength of major corporations. Principal financial institutions were unable to show they had enough capital. In the resulting shakeout, “lifelong employment” in Japan became a casualty. Consumer confidence was severely eroded by employment uncertainty, collapsing asset values, and diminishing faith in financial intermediaries. Business confidence in Japan was undermined by the loss of traditional partnerships, declining demand, and inadequate capital.
Government efforts to revive Japan’s economic growth in the 1990s were not successful. They were further hampered in 2000 to 2001 by the slowing of the global economy. The current global financial crisis is hitting Japan hard. GDP fell by 0.6 per cent in 2008, making Japan one of five comparator countries to contract in 2008. Production and business investment fell sharply.