US, Japan, Canada and UK Economics Compared

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Table of Contents

Output and Growth (Real GDP)
Productivity (Output per Worker)
Inflation and Prices (CPI)
Labor Market (Unemployment Rate)
Reference List

Output and Growth (Real GDP)

The period before the year 2007 was seen by many analysts as the most successful in modern times. The countries recorded impressive growth in output in comparison to the previous years. In the year 2007, a financial crisis triggered by the crash in the housing markets was the beginning of a continuous downward spiral for the economies. Before the year 2007, the four economies registered economic growth rates well above 2%. The US registered a growth of about 21/2% growth for the first quarter of the 2007. At this time the nominal GDP stood at about 14 trillion. Since then there was a reduction in growth rate.

Early in the year 2008, the growth rate was just over 1% and by the end of the same year, the countries were recording negative growth. The US recorded a 3% decline in the economy during the second quarter of 2008. Japan was also heavily affected registering a whopping 3.8% decline in output in the same period. This was attributed to the exposure of the Japanese economy to international markets especially the US which was facing major challenges. Canada registered the least decline of just over 2%. The main reason for this was the continued strengthening of internal markets as opposed to export orientation.

Reactions by respective governments have seen a gradual reversal of the situation. The governments applied aggressive expansionary fiscal policies geared towards stimulating the economy. The effects of these were felt at during the last quarter of 2008 when the growth rate was seen to take an upward turn. Therefore all the four economies are in the recovery process. It can however be observed that the US and Japan are recovering at the highest rates a fact attributable to the high level of interdependence among the two countries.

Productivity (Output per Worker)

Productivity is determined by the amounts of output an average worker is responsible for. The most important determinant of this indicator is the level of output a country operates. A high level of output means a higher level of productivity (Eveland, 2008, p23). Since the magnitude of the workforce was not significantly affected by the recession, the fall in output levels for all the four countries meant a fall in the level of productivity. Again of the four countries, Japan was the hardest hit. This is because the fall in exports which accounts for over 60% of Japanese output drastically fell as the American economy was struggling.

Historically, the US economy is known to have a high level of productivity given the low unemployment rates. In the year 2007, the growth rate of the productivity level for the US was about 2% while Japan and the UK showed insignificant growth. However after the last quarter of 2008, things turned for the worse. All the four countries witnessed a reduction in productivity levels. Again Japan was mostly affected as the level of productivity fell by over 30% in 2009. Canada followed with about a4a5decline in productivity while in the UK and the US; productivity fell by about 11%. Recently, the four economies are pulling out from the recession. This only means increased levels of production and thus the productivity levels are in the increase. Among the four countries, Japan seems to be recovering fastest.

Inflation and Prices (CPI)

Of the four countries, Japan recorded the lowest inflationary rates in the period leading to the instabilities witnessed in 2007 and also the period after. The inflation rates for the four countries peaked in the period leading to the crisis. The US registered inflation rate of about 4.5% in late 2007, the UK recorded about 4.2% while Canada recorded just over 3% and Japan recorded the lowest rates at 2%. This is when the housing bubble burst.

The overvaluation in the housing markets triggered a sharp decline in prices. This is in tandem to the economic cycle. As economies sank into recession, deflationary pressures took a toll on the trend in market prices. The sharp decline in prices continued to the negative and hit the bottom in mid 2008. At this time, the US recorded a 1.8% decline while Japan recorded a decline of 2%. Canada recorded about 0.8% decline (Schmitt, n.d, par4).

The upward trend has gained momentum in the year 2009. The US is recording a very sharp turnaround in the movement of prices. This can be attributed to the aggressive expansionary monetary policies instituted by the four economies. The US was the first to institute the expansionary policies hence it is the leader in reversing the deflationary pressures. At the moment, inflation in the US is in the range of 2%. Japan, the US and the UK are following the trend. It is expected that the next few years will see inflation become an important variable of concern because if it remains unchecked, the economic gains made through the expansionary policies are likely to be eroded.

Labor Market (Unemployment Rate)

Unemployment rates are highly influenced by the level of economic activities in an economy. The level of output determines the level of employment in the economy. The economic boom witnessed in the period leading to 2007 had seen consistently low unemployment levels. The UK had an unemployment rate of about 5.2% in 2007. The recession resulted in a consistent increase in the unemployment rates. By January 2009 the rate was 6.4% and the rise continued to 2009 to about 7.9%. However, 2010 is seeing a decline in this rate to 7.8%. The US saw a rise in unemployment rates to about 10.2% in 2009 from about 8% in early 2007.

In Canada, the unemployment rate was estimated at 6% in 2007. The recession led to a rise in unemployment to over 9.5%. The rates have remained high at about 9.2% according to the statistics collected up to February 2010. The unemployment rate in Canada was 3.8% in 2007. The rates rose to over 5%. The recovery of the economy has caused a slight fall in the unemployment rates to about 4.9% (International Economic Trends, 2010, par3).

Assessment

The four economies are affected by the economic recession in different proportions and hence reacted in disproportionate scales. However they are all pulling out of the recession. All the indications are that the four economies are recovering given the successful application of economic stimulus plans. The UK and Canada have much stronger economies due the strong domestic demand in the two countries. The US faces strong challenges in improving the flow of credit and restructuring of the financial markets.

Future outlook

The economies are indicative of a bright future ahead. The economic stimulation is proving effective in reviving the economies. However, there are two main concerns especially for the US economy. The two issues are inflation and the high level of indebtedness. The expansionary monetary policies have led to a gradual increase in the inflation rate. The need to tame inflation may require an increase in interest rates a situation which could further curtail the flow of funds required for investment. Secondly, the high national debt is likely to lead to higher taxes in the future and this would be counterproductive (Mussa, 2010, par4). This thus requires the development of a proper exit plan not to destabilize the economy.

Reference List

Eveland J. (2008). Economic Indicators in Macroeconomics. TUI University.

International Economic Trends, (2010). Economic research Federal Reserve Bank ST. Louis. Web.

Mussa, M., (2010). Global Economic Prospects 2007/2008: Slowing to Sustainable Growth. Web.

Schmitt, E. (n.d.) National Income Accounting. Web.

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