A lot has happened to the global economy over the last 35 years. The forces of economic liberalization, globalization, and the rise of the multinational corporation have all left their mark…[Check out the dynamic Voronoi diagram below showing how] the GDP (total market value of all goods and services produced in a country for a given time period) of each of the world’s largest countries have grown or contracted relative to others from 1980 to 2015.
Using data from the International Monetary Fund (IMF), the size of the countries and regions in the diagram represent the relative size of their economies (in terms of nominal GDP). As the diagram (see here) cycles through the years from 1980 to 2015, you can see how economies have grown or contracted relative to others. (Note: The area labeled “other” represents countries with a combined GDP that has been consistently lower than 11.5% of the global economy over the last 35 years.)
What the diagram tells us
If you focus on a particular region or country, you will notice that in many cases there is a period of relative expansion followed by relative contraction, or vice versa...
- The biggest change over the last 35 years was a transfer of economic dominance from Europe to Asia. In fact, in 1980, Europe represented approximately 32% of global economic activity, while Asia accounted for about 20%. By 2012, their positions had been completely reversed.
- The relative GDP of North America decreased by just 2% over the 35-year period.
- South America, Oceania, and Africa saw marginal increases.
- The Canadian and Mexican economies have declined slightly in relative terms (by 0.2% and 0.4%) between 1980 and 2014.
- The U.S. economy went from 25.7% of global GDP in 1980 to 22.5% in 2014.
The most drastic country-level changes happened within Asia.
- The biggest story is of course China, which grew from 2.8% of global GDP in 1980 to 13.4% in 2014.
- Conversely, Japan shrunk from 9.8% in 1980 to 6.0% in 2014.
- The other big contributors to Asia’s economic growth were India, South Korea, Russia, and Taiwan.
According to IMF projections, 2015 will actually be a fantastic year of growth for the U.S., China, and India:
- the U.S. economy is forecast to grow by 1.8% compared to 2014 (in relative terms),
- China and India are forecast to grow by 1.6% and 0.5%.
The worst-performing economies this year will be Russia (-0.8%), Brazil (-0.4%), Japan (-0.4%), Germany (-0.4%), and France (-0.4%).
Here are the key points that this diagram has taught us:
History doesn’t go in a straight line: for many countries (including the U.S.), the last 35 years have been an economic rollercoaster ride. Another example is Japan, which reached a peak of 17.6% of the global economy in 1994, but now stands at just 6%.
The global economy actually moves in waves: over the years, recessions in the US have impacted the entire global economy. For instance, rising U.S. interest rates from 1986-1989 and an oil price shock in 1990 briefly slowed economic growth in the U.S.. Also, the year 2001 saw the dot-com bubble burst and 9-11 attacks, which ended a decade of economic growth, but it was the Great Recession from 2007-2009 that had the biggest impact, causing the U.S. and European economies to slow while emerging countries (mostly in Asia) continued to gather steam.
While off it’s peak, the U.S. remains the most dominant single economy, representing almost one-quarter (22.5%) of the world’s GDP — equivalent to the Europe’s share.
China’s economy has skyrocketed, growing from a relatively small economy in 1980 (2.8% of global GDP) to the second-largest economy today (13.4% of global GDP).
In terms of GDP, Asia is the new Europe — Asia’s current share of the global economy is roughly equivalent to Europe’s in 1980 (32%).
Where is the global economy heading?
According to the IMF’s World Economic Outlook, the global economy will grow by:
- 3.3% in 2015, slightly slower than last year, but the IMF notes that advanced economies will actually be growing faster this year, while growth in developing economies will be slower than in 2014 and speed up to
- 3.8% in 2016 due to:
- low interest rates,
- neutral fiscal policy in the EU,
- lower fuel prices, and
- growing confidence in labor market conditions.
The Chair of the Federal Reserve in the U.S. seems confident as well, recently stating that “the prospects for the US economy generally appear solid”. Nevertheless, there are downside economic risks, including market volatility and excessive asset prices shifts.
*The source of the diagram (see here) and copy above is from HowMuch.net, a cost comparison website. HowMuch.net have produced similar diagrams before — one comparing the level of economic activity in the various US states, and another comparing the GDP (by sector) of the world’s largest economies. Check them out for more economic insights!
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