G-7 Growth in the Second and Third Quarters of 2008

November 17, 2008

Market chatter early this year obsessed about a U.S. recession but did not anticipate downturns elsewhere. U.S. real GDP fell 0.3% at a seasonally adjusted annual rate (saar)in the third quarter but posted annualized growth of 1.3% between 1Q08 and 3Q08. Growth was also negative last quarter in Euroland (-0.8% saar), Japan (-0.4% saar), Germany (-2.0% saar), Italy (-2.0% saar), and Britain (-2.0% saar). French growth swung back into the black (+0.6% saar), and Canada has not yet reported growth for the quarter.

Growth during the year to 3Q08 was less than 1.0% in the United States (0.8%), Euroland (0.7%), and Britain (0.3%), and GDP in Japan slid 0.1% y/y. Growth between 1Q08 and 3Q08 was negative in Euroland (-0.8% saar) as well as its four largest members: Germany (-1.9% saar), France (-0.3% saar), Italy (-1.9% saar) and Spain (-0.1% saar). The two-quarter growth rates in Britain was -1.1% saar. Two-quarter growth in major components of demand for the United States and Japan are compared below.

%, SAAR United States Japan
Consumption -0.6% -1.0%
Residential -16.3% +1.5%
Investment +1.2% -6.1%
Government +4.9% -1.9%
Exports +9.0% -3.9%
Imports -4.6% -2.3%
Real GDP +1.3% -2.0%


The irony in these comparisons is that Europe and Japan posted consecutive negative quarters before the United States and a considerably weaker two-quarter average growth rate than the States. All that is history now. U.S. growth in 4Q took a big turn for the worse, and growth elsewhere has also weakened substantially. The striking feature in the above table is the contraction of personal consumption in the early stages of the downturn. Consumption growth often continues rising in mild recessions, and it rarely is the first component of aggregate demand to cave. Over the three years to 1932, personal consumption’s drop of 5.8% per annum was dwarfed by the plunges in business investment of 52.5% per annum and exports of 17.7% per annum.



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