Thursday, August 18, 2011

G7 expansion? Not even close. Canada's in a league of its own

Disclaimer: I'm in Germany, and the keyboard takes some getting used to. Therefore, some of my posts in the coming week will be short and sweet (so that I don't include characters lik รถ, which is sure to turn some heads). Furthermore, blogger spellcheck doesn't work in English here.

The Q2 real GDP data across the G7 are now in, except for Canada who is always the last to release their statistics. We now know that the G7 expansion has been nothing short of pathetic. Why? Because among the G7, ONLY Canada - the G7 consists of the US, UK, Germany, France, Canada, Italy, and Japan - has fully regained its GDP lost during the recession (it had by Q3 2010 no less). Canada's in an expansion league of its own.

Hence, the G7 ex Canada remain in "recovery" mode through Q2 2011 and roughly 3.5 years since the previous cyclical peak (see table in reference of post).

(Note: I differentiate "recovery", or regaining output lost, from "expansion", or growing beyond the previous cyclical peak, in this post.)

The chart above illustrates real GDP (just "GDP" from here on out) across the G7 around the peak of each country's GDP during the last cyle, point 0. Only Canada has fully recovered its real GDP lost, having expanded to a level that is near 2% over its previous peak through Q1 2011.

A full business cycle can be measured as the bottom of a recession to the bottom of the next recession, or the trough to trough measure. In the US, the latest cycle lasted 91 months from the trough of the 2001 recession to the trough of the 2007-2009 recession. And here we are, 14 quarters since the peak in Q4 2007, of which GDP is 0,42% below. For comparison, GDP fully retraced the peaks previous to the 1981-82 and 1990-91 recessions in 7 and 6 quarters, respectively (by my quick count).

Even Germany, the wunderkind of euro area growth had not regained its GDP lost as of Q2 2011. And don't even get me started on Japan.

The ECB is tightening; US Congressional leaders are recklessly endangering the economy; and some euro area governments are pushing through even further fiscal spending cuts to calm market angst. This stinks of policy mistakes - and here in the US, we're patting ourselves on the back because the economic data do not scream recession yet?


Rebecca Wilder

Reference: Business cycle peak dates for chart above


  1. "And don't even get me started on Japan."

    With now three straight quarters of declining GDP, I believe we can safely say that Japan is, at best, "double-dipping."

  2. Great call earlier on Germany