Organizations such as the World Bank and International Monetary Fund (IMF) maintain detailed records on a diverse set of statistics, including unemployment, life expectancy, inflation and literacy. But gross domestic product (GDP) seems to fascinate people the most, possibly because it offers a sort of report card on the health of a country's economy without getting too deep into the weeds of the ins and outs of how economies work.
The Largest Increases in GDP Growth
The IMF has tracked year-on-year changes to GDP since 1980 as part of its World Economic Outlook database project. While obtaining entirely reliable figures on growth is difficult, having three decades worth of information helps point to economies that have experienced explosive growth. The largest increases in GDP growth since 1980, according to the IMF, are as follows:
- Equatorial Guinea (1997): 150%
What caused these countries to experience such rapid growth? Sudan was embroiled in a civil war that lasted more than two decades (1983 to 2005), though in 1997 some of the combatants signed agreements that ended - at least temporarily - fighting between government and rebel factions. Kuwait bounced back after being invaded by Iraq, and subsequently liberated by coalition forces, in 1991. Much of this "bounce" came from a restart in oil production that was halted during the fighting.
Of this list, only Equatorial Guinea's growth can be linked to aspects of traditional economic growth: discovery of natural resources, increased privatization and improved labor productivity. The country experienced rapid growth as it took advantage of its natural gas and oil fields, which allowed the country to rapidly increase exports. It also benefited from being one of the larger producers of cacao. In some ways, the growth in Equatorial Guinea is not dissimilar from that of China in that it was taking advantage of an abundance of "low-hanging fruit," meaning unproductive labor and untapped resources.
The Largest Decreases in GDP Growth
Then there's the other end of the growth spectrum. The largest decreases in GDP growth since 1980, according to the IMF, are as follows:
- Kiribati (1980): -44%
What common factor caused these countries to experience such drastic declines? Political turbulence. Lebanon was at war with Israel in 1980 and was facing its own civil war until 1989, when the Taif Agreement was signed. Kuwait was invaded by Iraq, which precipitated the Gulf War in late 1990. Kiribati declared its independence from the United Kingdom in 1979 and had to deal with the growing pains associated with setting up a new government. Rwanda was plunged into genocide following the assassination of its president in 1994. Economies grind to a halt when conflict erupts inside the country's borders.
Like a boxer knocked down by a vicious right hook, many countries are able to bounce back within a short time frame. Unlike pugilists, however, a return to GDP growth isn't necessarily a result of prowess or skill as much as a return to normalcy. After all, GDP growth is just percent change. Determining if GDP growth is a one-off occurrence or part of a longer trend can remove some of the "noise" associated with events that may only affect a country for a single year. The following list shows countries that ranked in the top 10 for GDP growth for at least five consecutive years between 1980 and 2010.
- Azerbaijan (2005-2009)
Why is Equatorial Guinea the only hot economy to remain standing? The growth of a country's GDP is not the same as the growth of its stock market. Those who invest with an eye for the longer term, whether following a growth or value strategy, consider much more than one year's performance when deciding which companies to invest in. Likewise, looking at such a short horizon when it comes to a country's growth can lead to decisions that are not grounded in reason. Investing in a country based on a single year of GDP growth or contraction is like investing in Apple based on a handful of news stories rather than looking at its long-term prospects.
The Bottom Line
What will the future hold? The IMF estimates that between 2013 and 2017 the average world GDP growth will be 4.3%. It also estimates that China, Bhutan, Timor-Leste and Iraq will be among the fastest growing economies. For those itching to place buy orders, remember that predictions have a nasty habit of falling short.
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