Guinea Big: Fastest Growing Economies

Via The Economist, an interesting look at the fastest economic growth worldwide:

DESPITE its slowdown, China is still likely to be the fastest-growing big economy this year. But what will be the zippiest economy, big or small? According to the IMF, Libya’s economy will grow by an astonishing 122% this year. That would be one of the fastest years of growth anywhere in the past three decades (see chart).

This remarkable statistic highlights the resilience of Libya’s economy. It also illustrates the limitations of growth as a yardstick of economic progress. One sure route to stunning growth is first to engineer a stunning contraction. Libya’s GDP shrank by over 60% in 2011, according to the country’s central bank, as rebels and loyalists vied for control of the country’s oilfields.

GDP is a measure of income, not wealth. It gauges the flow of economic activity in a country, not its stock of productive assets. In the aftermath of war, a country will be left with an obvious and urgent need for rebuilding. Reconstruction may lift GDP growth. But that should not obscure the horrendous loss of wealth. A broken window, as Frédéric Bastiat, a 19th-century economist, pointed out, is good for the glazier’s trade. It does not follow that breaking windows (or rebuilding cities after hurricanes, for that matter) is a route to prosperity.

Spectacular booms follow horrendous busts for statistical reasons, too. A sharp contraction of GDP means that subsequent growth will be calculated from a much smaller base. It takes growth of 100% to undo a contraction of 50%. Even if Libya’s economy grows by 120% in 2012, its GDP will be no bigger than it was in 2010.

Libya’s growth this year is not, however, the fastest in the IMF’s database, which covers 186 countries and goes back to 1980. It is pipped by Equatorial Guinea, a Spanish-speaking country of 720,000 people on west Africa’s coast. Its secret was not war but oil. In August 1996 its offshore Zafiro field came onstream, producing about 75,000 barrels a day by the end of 1997. GDP grew by almost 150% that year.

Fast growth in that and other years has depleted the country’s natural assets. Output from Zafiro peaked in 2004, leaving the country “eager to start production from new finds,” according to America’s Energy Information Administration. Other assets are also in jeopardy. Under its Kleptocracy Asset Recovery Initiative, America’s Department of Justice says it is chasing some of the baubles accumulated by the president’s son, including more than $1.8m-worth of Michael Jackson memorabilia.

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