Checking the depth gauge Which of the big rich economies has fared best and worst during the crisis?

FINANCIAL markets and headline-writers pay a great deal of attention to quarterly GDP growth rates. For example, figures released over the past couple of weeks have shown that growth has slowed sharply in America and Europe in the second quarter, while Japan’s economy has continued to contract. For citizens of the countries themselves, however, the level of output (and hence income) relative to that before the crisis is what really matters, rather than the rate of growth.

If countries are ranked according to the change in real GDP since the end of 2007, Canada tops the league, its output in the second quarter is estimated to be almost 3% higher than it was before the crisis. But Canada, like the United States, has a fast-growing population thanks to immigration, whereas the number of Germans and Japanese has started to shrink. GDP per person is therefore a better measure of relative performance.

By this gauge, Canada is still 1% below its pre-crisis level and America is almost 4% down. Even worse hit are Britain, Italy and Japan, where average income per head was 5-6% below its peak. In contrast, China’s GDP per person rose by an impressive 35% in the same period and India’s was up by 22%.

Most economies still have a lot of lost ground to regain, but comparing output now with its level before the crisis understates the true depth of their slump. An alternative yardstick is to compare GDP per person now with what it would have been if it had continued to grow at the same pace as during the ten years before the crisis. On this basis, not even Germany has yet caught up: it is almost 4% below its trend. America’s GDP per person has fallen by 10% relative to trend, but by far the worst hit among the G7 is Britain, with a 13% shortfall. Even that looks mild compared with Ireland, where income per head is now about 25% below its previous (and clearly unsustainable) trend.

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The Economist, August 20^th, 2011