GDP in emerging Europe. Worse than you think.
After 2008, GDP growth in almost all Eastern European countries disappointed. Greece is in a class of its own, Poland and Slovakia did well (graph).
Between 2007 and 2014, economies like those of China and India were spurting ahead – but in countries like Lithuania and Romania production was barely at the 2008 level while in countries like Latvia, Croatia and Slovenia (austerity darlings, by the way) it was below the post crisis peak… Not all growth is good – but many of the countries in the graph are poor and many people in these countries do need better healthcare and better houses. Only Poland and Slovakia did well, Poland to an extent because its pre-2008 banking system was fragmented and old-fashioned while it temporarily devaluated in 2008 and 2009, which made it escape the financial bubble and bust. Slovakia seems to be heavily intertwined with the succesful German car industry.
GDP is an indicator of production, expenditure and income in the monetary economy: agriculture, manufacturing, health care, education, the police etcetera. Even production by banks. The measurement of GDP is based upon multi dimensional micro data but also macro-consistent and, closely related to employment and unemployment, entirely consistent with estimates of debt and, to a lesser extent, wealth. During the last 100-200 years (very large differences between countries) productivity increases enabled mind-boggling increases of the ‘volume’ of GDP (which is not directly estimated but which is calculated using historical ‘fixed’ prices and a large number of micro assumptions about quality changes and whatever). In a one liner: we moved from cart loads and dirt roads to truck loads and highways. And from Tansy to antibiotics (though the effectiveness of the latter is decreasing). After the break up of the Soviet empire, people expected eastern European countries to catch up with ‘western’ Europe as they could use a whole array of already developed technologies to boost production and as, for centuries, ‘growth’ seemed to be natural to ‘mixed economies’ (don’t underestimate the extent to which growth is caused and enabled by government activities). This did not happen right away: all these countries experienced extreme slumps. And despite some catch up growth after about 1995, growth stalled again after 2008 – growth seems to be less ‘natural’ than we thought – especially after severe financial crises. My opinion: this tendency is in Europe exacerbated by extremely creditor oriented economic policies, which in Europe are, ironically, leading to increasing amounts of non-performing loans and the rise of zombie banks.