The United States might be grappling with a host of serious economic maladies, but comparatively speaking, we're still better equipped to continue growing than many other advanced economies, experts say.
"From an overall perspective, we are just so much better off," says Michael Czinkota, professor of international business at Georgetown University. "There is still American exceptionalism when it comes to economic well-being."
While we share many of the same systemic problems afflicting similarly situated economies, such as high unemployment and high public debt, experts say the dynamic, resilient nature of the U.S. economy affords us more advantages when it comes to recovering from one of the worst recessions in history.
"The U.S. is the best example of a creative, dynamic market economy," says Jan Randolph, director of sovereign risk at IHS Global Insight. "The creative-destruction process is most fully revealed in the U.S. In the last few years we've seen a lot of destruction, but we also shouldn't underestimate the amazing, sometimes stunning creative power. Sometimes that's difficult to see in recessions."
Here's a list of five advanced economies that face economic challenges more serious than our own:
Ireland. Nagging troubles in Ireland's massive banking sector continue to plague the beleaguered country, which announced in late March that its banks need an additional $34 billion—on top of the $67 billion already committed by the European Union and International Monetary Fund—to cover losses from the country's housing bust. "Ireland has a very special problem because the banking sector reached a size that, relative to its economy, was completely crazy," says Antonio Fatas, professor of economics at INSEAD, a graduate business school with campuses in Europe and Asia. "A lot of those banks failed and when the government had to bail them out, it really made a big hole in the budget account."
That "big hole" totaled as much as 40 or 50 percent of Ireland's gross domestic product, says Fatas, which puts an enormous debt burden on the country going forward. While both the euro zone governments and International Monetary Fund have stepped up to bail out the Emerald Isle, experts say the ripple effects will last for many years. "Ireland is beginning to grow again, but it's going to be a long haul to try and repair the banking system," Randolph says. "The taxpayers in Ireland will have to bear the costs for generations because debt levels have gone through the roof."
Greece. Nearly a year after it was saved from near default by a joint bailout from the European Union and International Monetary Fund, the Greek economy continues to slump beneath the weight of its nearly $500 billion debt. Even if Greece meets the targets of its bailout package, some say the country will still be saddled with an unsustainable debt burden. This uncertainty, in turn, has caused speculation about Greece's need to restructure its debt, which has driven up the country's borrowing costs.
"Greece is a failure on many dimensions," Fatas says. "Greece has mismanaged its budget much more than the U.S., they've had even greater deficits, and their economy is doing really poorly."
Chronic problems with the country's tax base have added further strain to Greece's struggling balance sheet. "The tax base is very small. Most people don't pay taxes, and so it's very hard to raise revenues," Fatas adds.
Worries about the state of the Greek economy aren't limited to its borders. Experts say Greece's debt problem could unsettle countries such as Germany and France—big holders of Greek debt—and spook bond investors internationally. "With Greece, it's not just the debt, it's also trust in the Greek government," says Czinkota. "Financial markets have lost a lot of trust, and then nobody wants to help you out."
Spain. High unemployment continues to be a stumbling block for the U.S. recovery, but at 8.8 percent, our unemployment rate pales in comparison to Spain's jobless rate, which stood at a record 20.5 percent in February. The rate is even higher for younger workers, at about 40 percent.
"That doesn't bode well for any significant recovery in consumer spending over the next few years," says Raj Badiani, senior economist at IHS Global Insight. High consumer debt levels are also likely to depress future consumer spending, a sector which, along with exports, Spain relies heavily upon to fuel its economy. "Before the crisis, consumers accumulated record levels of debt," he says. "High levels of debt with a dysfunctional labor market is a really, really bad combination."
Add to that a bloated housing market and a troubled banking sector, and the outlook for Spain's economic growth is a paltry 0.8 percent, according to its central bank. "What happens in the housing market impacts what happens in the banking sector. They go hand in hand." Badiani says.
The challenge facing Spain now is that no one really knows how much home prices have fallen, and without that figure, it's unclear exactly how exposed the banking sector is to real estate losses, he says. "The real concern is when are housing prices going to start to recover, and when is the housing glut going to start to disappear?" Badiani says.
As Spain institutes austerity measures to reduce its budget deficit, spending cuts will impact economic growth as well. "Apart from exports, there really isn't another engine of growth," Badiani says.
Japan. While Japan has grappled with slow growth and stagnation for decades, the recent devastating earthquake, subsequent tsunami, and nuclear crisis have crippled the country. Already shouldering net public debt levels of more than 100 percent of its GDP, Japan is likely to face additional debt pressures as the country rebuilds.
"Even prior to the earthquake, the Japanese economy had been doing very poorly," Fatas says. "It's an example of an advanced economy that's failing to live up to its potential. It's a combination of many things—their efficiency and innovation has not matched that of the U.S. or even European countries and their monetary policy has not been the best."
Experts predict Japan will see momentum build during its reconstruction, but caution that temporary spikes in GDP growth due to increased infrastructure projects will not liberate the country from its structural financial and debt problems.
China. "I would characterize China right now as a big question mark," Czinkota says. After more than two decades of economic prosperity, the pressures of rapid growth might be catching up to the second largest economy in the world, he says. "There is certainly a greater degree of uncertainty about China right now than there is about the U.S."
In particular, the prospect of growth-flattening inflation has troubled China. While the country's central bank has raised interest rates to combat inflation, Fatas says managing the business cycle could prove to be a challenge over the next few years. "There's been some concern that they're getting to a point where there's too much inflation, but that's on a fairly short horizon," he says. "Growing at the rate that they have been for a longer period is not going to be easy. That is where you need a structural transformation of the economy."
Many questions surround the prospect and necessity of that transformation, which is complicated by political and social factors. "This is not a market economy. It's a country that has a lot of political questions," he says. "If this doesn't happen smoothly, it could lead to slowdown in growth or stagnation for a few years."
China also faces the challenge of transition from a mostly export-driven economy to a more balanced domestic consumer-based economy. "China has been doing well for several decades, but they've done so using a very specific model. It's been all export-driven," says Russ Koesterich, iShares global chief investment strategist. "They'd like a greater percentage of growth to be not from exporting to the rest of the world, but from domestic consumption."
To achieve that, Koesterich says inflation-adjusted wages will have to rise as well as the availability of consumer credit products such as mortgages, car loans, and credit cards. "When you compare China to the United States, it's still very much a developing country," he says.