The economy is bad in the U.S. and Western Europe, but at least economists stopped saying the Great Depression II is at hand.
Other countries aren't as lucky. While the International Monetary Fund said Wednesday that much of the world economy "is beginning to pull out of a recession unprecedented in the post-World War II era," the economies of Latvia, Estonia, Iceland, Ireland and Lithuania won't be coming along for the ride, with gross domestic product falling by more than 10%--the standard yardstick for a depression--this year.
And though most of the world is enjoying low inflation, with high unemployment keeping wage and price growth in check, Seychelles, Iceland, Venezuela, Ukraine and Jamaica, saddled with huge government debt burdens, are drowning in it. Worse, all five countries have weak GDP, creating the ugly phenomenon known as "stagflation," familiar to millions of Americans who weathered the 1970s. In Iceland, the economic collapse led to 8.5% inflation and GDP that fell 10.5%. Call it a stagflationary depression.
In Pictures: The World's 10 Hardest-Hit Economies
To find the 10 countries hardest hit by the downturn, we used data from the International Monetary Fund to create a misery index: gross domestic product, inflation rate and purchasing power parity. The IMF does not measure unemployment rates across all countries, and different countries use different methods--often these measures are unreliable, because they are manipulated for political purposes.
Gross domestic product is the most straightforward measure of a country's overall economic performance and declining GDP predicts rising unemployment. In Estonia, for example, the economy is forecast to drop by 14.2%. According to the most recent European Union unemployment statistics, its unemployment rate has risen to 15.6% from just 3.9% a year ago.
Inflation in a country that's still growing is not nearly as bad as inflation in a country with slow growth. When inflation causes wages to rise, the inflation may affect currency traders much more than average citizens. To distinguish between inflation that's running away from wages, we also weighted the per-capita purchasing power parity, which measures how much more or less a person can actually afford to buy in the changing economy.
Although Iceland has characteristics of both depression and stagflation, its recession is not expected to be nearly as severe as that of Estonia and Latvia, where GDP could shrink by 14.2% and 17.8% respectively. And Iceland's inflation is not as severe as the Seychelles, the Indian Ocean archipelago-nation that was forced to devalue its currency in 2008.
The hardest-hit countries often depend heavily on trade and international banking in their economies, and many of the countries have unsustainable debts. Jamaica, for example, has a net-government deficit around 113% the size of its entire economy. The U.S. is rightfully worried about its deficit, but at the end of 2010 it is estimated to be around 65% of the economy--somewhat more manageable than Jamaica's. And the U.S. economy has slowed only 3.2% from its peak (Jamaica's off 4%). Not bad, all things considered.