GDP per Capita Statistics

There is an interesting article in the Economist this week, which points out an obvious limitation in the main economic statistic - GDP growth.

Basically, GDP growth measures the output of an actual economy. However, to gain a better understanding of average living standards we need to look at the growth of GDP per capita. For example, if one country has GDP growth of 4%, but the population increases in size by 4%, then the average citizen will have the same income.

Another country, could have zero GDP growth but, if the population is declining then the average citizen will be better off.

The economist points out that when we use GDP per capita growth figures, Japan has actually outperformed the US economy. Because although actual GDP has increased faster in the US, this has been boosted by a growing population.

It means that other fast growing economies like India, should also have their GDP statistics treated with caution. Although, growth rates are much higher in India, it is partly boosted by a rapidly rising population.

GDP and Definition of a Recession ?

A definition of a recession. Is a period of negative economic growth. However, if America has population growth of 1% a year and GDP growth of 0.9%; technically, the average citizen is seeing a decline in income. Therefore, this might be a better guide to when a recession actually occurs.

Why GDP is still Important

• However, GDP is still important. If we take Japan they have a national debt of 180% GDP. To reduce this national debt, Real GDP growth is more important than Real GDP per Capita growth.
• A falling population, means an ageing population and worsening demographics which will only worsen the Japanese debt