Mythbusting: Are Europe and Japan That Different from the U.S.?
I recently had a discussion with a company in Holland, Michigan, that felt they needed to be more established in Europe but were hesitant given all the negative media reporting a turbulent economy. Moreover, now that the European Central Bank, UK Monetary Policy Committee and the Bank of Japan have all picked up the monetary policy baton from the Federal Reserve, many see the exchange as reinforcing the perception that opportunities in Europe and Japan aren’t as strong as in the U.S., but this isn’t the whole story.
Through the evolution of real GDP relative to 1997 (see below), the U.S. economy has fared better in this recovery, despite more severe housing excesses. This is in large part due to the U.S. financial system forcing banks to deal with bad loans and fix the problem faster than in Europe and Japan.
Evolution of Real GDP in Selected Developed Economies
Ratio to real GDP (U.S. chained 2011 dollars on a PPP basis) in Q4 1997:
Note the U.S. real GDP stands 38 percent above the 1997 Q4 level, while the EU-28 real GDP is 25 percent higher and Japan’s GDP stands only 10 percent higher.
However, when you normalize the economic trends to the underlying population trends (the below figure shows normalized real GDP per capita), a different narrative emerges, particularly with Japan. From this perspective, none of these regions look all that different.
Evolution of Real GDP Per Capita in Selected Developed Economies
Ratio to real GDP per capita (U.S. chained 2011 dollars on a PPP basis) in Q4 1997:
So for those considering growth strategies in Europe or Japan but are worried there may be something genetically wrong with the region, there’s hope. The market opportunities in these developed economies are more similar than many will lead you to believe.
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