Saturday, April 24, 2010

The shape of things to come

The world is changing - perhaps more rapidly and dramatically than at any time in recent history. The fiscal problems of a number of Western democracies are hugely significant - Greece is the canary in the coal mine. The shift in economic power towards Asia is likewise a very big deal.

Questions may be raised about whether Western democracies will be able adequately to deal with the current economic, financial and social stresses; whether the polarization of opinion evident in the US and elsewhere is a symptom of deep problems, a sign of things to come.

I will return in future posts to social, ideological and psychological issues. For now I just want to consider some data which indicate big changes in patterns of global prosperity.

Very recent figures have suggested that Asia is recovering well from the global financial crisis, just as Europe faces debt emergencies and the US remains sluggish. The just published IMF World Economic Outlook notes that Asia is staging a vigorous and balanced recovery.

I have been looking at some earlier IMF forecasts for relative GDP growth (but given recent data the predictions for Asian growth are probably understated).

Even before the Greek and other European government debt crises came to the fore, Europe was clearly on the wane. In 1991 it accounted for 29% of global GDP. The IMF prediction for the Euro zone plus the UK for 2014 is just 22%.

US figures are no more reassuring. In 1991 the US share of global GDP was 25%; in 2000, 30%; in 2014, according to the IMF, it will be 23%.

Most of the GDP growth during this period has been/will be occurring in Asia. China will leap from 2% of global GDP in 1991 to 11% in 2014. Add in Hong Kong, Taiwan, India, the main South-East Asian countries, Korea and Japan and that number goes to 27% of global GDP. And this is not counting Australia and the vast, energy-rich regions of North and Central Asia.

I mentioned in my last post that Asian stock markets now account for 32% of global market capitalization, while the US has fallen back to 30% and European markets to 25%.

The trends are clear. With increased economic power, the Asian region will become not only more prosperous but also more politically powerful and culturally influential. Conversely, Europe and the US will see their power and influence and prosperity in decline.

The relative GDP declines for Europe and the US coupled with large budget deficits and unsustainable levels of government debt portend not just a loss of global power and influence, but also increasing domestic social and economic stresses which may lead in some countries to a vicious circle of public anger, polarized opinion, instability and strife.