Wednesday, 13 June 2012

Guess Who's Emerging From The Crisis?

In reply to Krugman's post with the same headline. The graph below is the same as his except the red line is the Icelandic GDP measured in deflated Special Drawing Rights. That measurement of GDP is still far behind the fixed-krona prices.

Obviously, if (when) Greece defaults and exits the euro, the Greek GDP in euros will look somewhat similar right afterwards. But that's "OK", they won't be in a "recession" (two consequential quarters of decreasing GDP) any longer... we would at least hope.

GDP in Iceland, quarterly seasonally adjusted figures. Top value is 100 in both cases, but since the krona began falling before the GDP in krona did, the SDR top is earlier. Notice also the "mini crisis" dip in 2Q06 when Danske Bank and some other more sober analysts declared Iceland's then economic growth unsustainable. The SDR deflator is estimated by using the G7 inflation index issued by OECD. 

Edit: maybe it's time to reconsider the definition of recession. Does it make much sense that the worth of an economy's GDP in foreign currency can collapse by more than 50% and later, when the GDP in the domestic devalued currency begins to come back slowly, considered to be "recovering"?

1 comment:

  1. Love the photos of the Iceland. Also interested in your post.