What Does Annual Real GDP Growth Tell Us?
Quarterly growth rates in real GDP receive a lot of media attention, and we hear a lot of comparisons of today's economic conditions to the Great Depression, but what about looking at annual real GDP growth over a longer period of time to get a little historical perspective? Tim Iacono makes that point here on Seeking Alpha. The chart above (click to enlarge) shows annual real GDP growth from 1930 to 2008.
Annual real GDP growth during the 2008 recession was +1.3%. Compare 2008 real GDP growth to Great Depression I, when there were 4 consecutive years of negative GDP growth, and real GDP in 1933 was -26.5% below the 1929 level. As bad as economic conditions are today, and even if they continue through 2009, any suggestions that we are in Great Depression II have to be dismissed. The current consensus WSJ forecast (based on 55 individual forecasts) is for -.30% real GDP growth in 2009. Assuming that forecast is correct, a +1.3% real GDP growth in 2008 followed by -.30% in 2009 would suggest that we would be nowhere close to Great Depression II, and wouldn't even be close to some of the more recent recessions (see chart below, click to enlarge).
Much of the discussion about the "worst economy since the Great Depression©" assumes that we are already close to the economic conditions of the 1930s. The chart below of annual real GDP growth from 1970-2008 shows that the economic conditions of 2008 (measured by real GDP growth) aren't even as bad yet as the 2001 recession, when real GDP grew at .80% for the year. And assuming the consensus forecast of -.30% real GDP growth for 2009 is accurate, the 2008-2009 recession (+1.3% and -0.30% consecutive growth rates) would be a little more severe the 1990-1991 recession (+1.9% and -0.20%), but less severe than the recessions of 1974-1975 and 1981-1982.