Telephone 020 8878 8080
market news by nicholas ford
In amongst the comments on this website and at our investment briefings we have often made reference to a "decoupling" of the global economy frpm the US economy. Traditionally the fortunes of the global economy have been inextricably linked to those of the US economy, simply since the US is such a hugh market force.
The US economy is slowing. Over the years since the last US recession in the 1990's, there is little doubt that the global economy has proportionally shifted and that expanding economies in Asia and elsewhere do have the capability to take up some of the demand capacity of the US if its economy continues to slow. The so called BRICs countries (Brazil, Russia, India and China, South Africa) are expanding fast and some suggest have the potential to keep the global economy afloat.
However, whilst looking at the numbers behind all of this, I came across an interesting map of the US which renames each State as a country with a similar Gross Domestic Product (GDP). Hence Mississippi is renamed Chile, Nevada is renamed Ireland etc. etc. The really interesting part of this diagram was that the most productive US state, California, has an economy of a similar size to France, and the much vaunted Russian economy (with its huge oil and gas revenues) replaces the much smaller output of New Jersey. The economies of the UK, Germany, Japan, India and China are all too big to be compared to a single US state.
Looking at the raw figures the European Union's GDP is forecast to come in 15% higher than the US in 2007 and this is almost 4 times the size of the combined BRICS economies. Therefore one could argue that, crudely, the BRICS economies will have to grow at a rate more than 7 or 8 times the slowdown in the US and EU economies to keep global growth healthy. So in summary, outside of the US, Old Europe still leads the global economy and the BRICS economies contribute relatively little.
(Its true to say that this "snapshot" fails to factor in the trend in growth and that emerging economies have been growing fast, have these emerging economies reached critical mass though?: DATA from World Bank and IMF 2007 forecasts)