One of the biggest GDP drivers is population growth, which in Europe, like Japan before, has all but stagnated.
I am not saying that Japan didn’t make any mistakes in the last 30 years, they most certainly did. But despite all that the Japanese are still very wealthy, with some of the highest quality of life in world.
Maybe we Europeans shouldn’t fear less growth and, instead of repeat the mistakes of Japan, we should learn from them and embrace a much more stable economy.
I found the perfect example to explain the difference between “GDP per capita” and “GDP per capita, PPP”.
Denmark vs Germany
We all know that Denmark has some of the highest salaries in the EU. But, as everybody who ever been there will be able to tell you, living there is also really expensive.
Within the EU: Luxembourg, Denmark and Ireland have some of the highest salaries. But what does that actually buy you? This is what PPP (Purchasing Power Parity) tries to answer.
But first, let me go one step back and quickly point out the obvious. Comparing the GDP (Gross Domestic Product) as a total over nations, especially with very different population numbers, isn’t going to be that useful in most of the cases. data source
The obvious solution is “GDP per Capita”, where one simply divide the GDP of a nation by the amount of people living there. This gives a very different picture indeed. data source
That doesn’t necessarily translates directly to salaries, but gives a very good example of what people there earn. It also does not say anything about how well that wealth is distribute between poor and rich, this is another topic for another day.
But have a look how far apart Denmark with a GDP per capita of $56k is from Germany with $44k.
But Denmark isn’t part of the EuroZone and, as mentioned, living there is noticeably more expensive.
What purchasing power parity does, is to look at how expensive some products are compared in $ USD to find out how much that money actually buys you. So what do you think, Germans or the Danish, who will get more for their salary? data source
Despite a 20% difference in salary, Germany and Denmark are almost identical.
So if you want to save a lot of money, Luxembourg and Ireland look a lot more attractive.
Money isn’t everything.
Despite that, Denmark and Germany usually ranks as one of the best places to live in the world. Typically ahead of both Luxembourg and Ireland.
If the accumulation of money is more important to you than the quality of life, you need to look at how much the cost of living is and not just the size of your pay-cheque.
Happiness isn’t about money or how expensive life is. It is a question of what you get for it. Not enough will guarantee misery, true. But after a certain threshold other factors start to become more important. Things like personal safety, a clean environment and being surrounded by other happy people is much more important than how big the balance on your current account is at the end of the month.
This already resulted in some response from rating agencies:
Fitch on Aug. 31 cut its outlook on Italy’s “BBB” rating to “negative” saying it expected a degree of fiscal loosening from the new coalition government that would leave the country’s high debt more exposed to potential shocks.
Europe’s economy grew faster than the US in 2017, according to official data released this week, which shows an increase of 2.5% in both the eurozone and European Union last year.
The results published by the EU’s statistics office Eurostat mark the best period of growth for both groupings in more than a decade, and put them slightly ahead of the US, which posted a 2.3% expansion in 2017.
Eurostat also estimated that gross domestic product in the 19 countries sharing the euro and the 28-member EU rose 0.6% during the fourth quarter of 2017, compared with the previous quarter.
That impatience seems to be at the core of an unprecedented initiative by French and German economists, who published Wednesday a detailed plan on how to make the monetary union shock-resistant and a better guarantor of long-term prosperity.
Fourteen influential scholars, who in September published a joint op-ed in Le Monde and the Frankfurter Allgemeine Zeitung to urge their respective governments to be bold on reforming the monetary union, have taken a step further to detail what they think should be done — and the sooner the better.