UK Economy
UK economy since launch of the euro in 1999
By Michael Hennigan, Finfacts founder and editor
Aug 18, 2014 - 5:36 AM

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From The Economist's 'The World In 2014'

Last Friday it was reported that annual UK GDP (gross domestic product) growth in the second quarter was 3.2%, up from its first estimate of 3.1% in July, just a day after Eurostat reported that Eurozone growth had stagnated in the second quarter while the German and Italian economies had shrunk. With the UK economy back as an economic star and unemployment dropping by 437,000 over the past year, how has the performance compared with other European economies since the launch of the euro in 1999?

The Office for National Statistics (ONS) also said last Friday that in a comparison of UK growth with the other G7 (group of seven) industrialised nations in the second quarter, annual GDP in the US grew by 2.4%, Germany 1.3% and France just 0.1%. Japan was flat while Italian GDP fell by 0.3%.

The International Monetary Fund's current forecast puts the UK at the top of the G7 over the year.

David Smith, economics editor of The Sunday Times, wrote yesterday that GDP growth figures since the launch of the euro are: Italy up 3%, France 17%, Germany 18%, and UK 30%.

We would not add Irish GDP growth in this comparison as it would be meaningless and Smith's comparison itself is flawed.

While UK population growth has exceeded the levels in the other countries and may be the factor that puts the UK on top in absolute GDP in time, real (inflation-adjusted) GDP per capita in the chart above shows that Germany and Finland are ahead of the UK while Italy fell by 3%.

In 1991 on reunification, the German population had increased by 16m or 25% at a time when GDP per capita in the former communist-ruled east was €9,400, compared with €22,000 in the former West Germany.

The east remains a drag on German per capita growth as output in the east is at about 70% of the level in the rest of Germany -- see our piece on the myth of convergence.

Eurostat, the EU's statistics office, measures real GDP per capita [pdf] but it also adjusts for price difference between countries using Purchasing Power Standards (PPS).

With the EU28 at 100 for 2013, the UK is at 106 below France at 108, Germany is at 124 and Sweden at 127. Ireland's level is inflated by the profits of the significant foreign-owned sector.

The Eurozone average is 108.

Eurostat says that while GDP per capita is mainly an indicator of the level of economic activity, Actual Individual Consumption (AIC) per capita is an alternative indicator better adapted to describe the material welfare of households.

Actual Individual Consumption consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are purchased and paid for by households, by government, or by non-profit organisations. In international volume comparisons of consumption, AIC is often seen as the preferable measure, since it is not influenced by the fact that the organisation of certain important services consumed by households, like health and education services, differs a lot across countries

The UK's AIC is at 113 comparable with France, Germany is at 125 and the Eurozone average is 106.

Ireland and Italy are at 97.

The Bank of England expects earnings to rise by just 1.25% this year. Wages in June were just 0.6% higher than a year ago compared with annual inflation of 1.9% and average real wages are down about 8% since 2009.

Jens Weidmann, president of the Bundesbank, says the central bank supports a 3% nominal rise in German wages. The real rise since 2009 has been about 3%.


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