Engine rooms for the world economy

David Smith writing in the Sunday Times provides a timely reminder that the engines in the boiler room of the global economy have been renewed and replaced. Over half of the rise in global demand for goods and services came from countries outside the Group of Seven. For the first time ever, consumers in China have added more to world aggregate demand than their counterparts in the USA.

David writes that:

‘America’s gross domestic product, $13,843 billion, was four times the size of China’s, $3,430 billion, last year. But even on this basis, China’s economic growth of 11.4% made a bigger contribution to the world than America’s 2.2%. When the numbers are adjusted for relative prices, so-called purchasing power parity, as they should be, China is 45% of the size of the American economy, and 10% of the world. So last year just under a quarter of global growth came from China. This, the year of the Beijing Olympics, will again see the biggest contribution of any country coming from China, notwithstanding the severe winter snows. Add in India, Opec, Russia and Brazil, and well over half of global growth this year will come from outside the G7. If you are sitting on the MPC, then, you will be reasonably reassured that growth is not collapsing. The International Monetary Fund’s new forecast, of 4.1% global growth this year, is down on last year’s 4.9% but still strong. Between 1998 and 2003, for example, global growth averaged only 3.3% a year.’

Global growth will likely remain solid in 2008 - but the UK economy is more exposed to a deep slowdown in the United States and weaker activity in the Euro Zone countries. Taken together, well over seventy per cent of our trade is with the EU and the USA. Only 2-3% of our exports go to China.

The rest of David’s article can be seen here

The International Monetary Fund’s latest global economic forecast can be found here

‘Buffeted by recent financial market turbulence and a weakening U.S. performance, world growth is projected to slow to 4.1 percent in 2008, down from an estimated 4.9 percent last year, the IMF said in its quarterly update for the global economy.’