Most economies around the world continue to slow. This is important because the economic strength or weakness in a region impacts the job market, the availability of credit, the price of consumer goods and services, wages, and a host of other items. When an economy weakens, suffering tends to increase. That suffering is greatest in the world’s worst economies and some of the reasons for the slowdown.
The Economy: It’s More Than Numbers
Economic expansion or contraction is measured by GDP or Gross Domestic Product. When an economy is growing, jobs are more plentiful and people’s standard of living tends to improve. Conversely, when an economy is contracting, many companies cut staff to reduce expenses, which pushes unemployment higher. At the present time, the global economy is slowing with China leading the way.
The table below contains data on the world’s four worst economies on a year-over-year basis. I have also included the three largest economies for comparison. The column, “Economic Rank” shows the size of each nation’s economy (i.e. total GDP) relative to all others. “GDP (Year/Year)” measures the growth or contraction in the economy from the previous year. “Interest Rate” is the rate set by each country’s central bank (the equivalent of the Federal Reserve Board). Finally, “Debt/GDP” shows each country’s public debt as a percentage of its GDP. This last item is especially important as it provides an indication of a country’s ability to repay its debt.
The percentage change in GDP of the four worst countries ranges from -2.40% to -4.60%. To put this into perspective, U.S. GDP during the Great Recession of 2008 was -4.1% (adjusted for inflation). Even though the GDP figures are similar, other data suggests that these economies are on an unstable foundation. One difference is the U.S. was not nearly as dependent on the price of oil in 2008. It is important to note the abnormally low interest rates and level of inflation in the U.S. and Japan. With interest rates already at or near zero, the Fed and the Bank of Japan have no place to go if economic conditions worsen. In addition, with inflation at 0.20% (Y/Y) plus a slow economy, there is considerable risk of deflation in the U.S. and Japan. This is something Japan has struggled with since the early 1990s. This is significant because the U.S. and Japan comprise over 20% of the world’s GDP.
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