Talk of the World’s Economic Centre of Gravity Moving Eastward Is Exaggerated

The latest Economist offers some interesting macro-economic perspectives for the global economy, which needless to say still remains in a cycle of large economic risk-taking.

The article disputes the idea the East is taking over the world while noting the shift in economic power from West to East is exaggerated. The article also suggests that based on recent figures the expansion trend has actually moved in reverse when considering the fact Asia’s total share of world GDP (when measured in nominal terms at current market exchange rates) has slipped, from 29 percent in 1995 to 27 percent last year.

The Economist : In 2009 Asia’s total GDP exceeded America’s but was still slightly smaller than western Europe’s (although it could overtake the latter this year). To put it another way, the output of the rich West is still almost twice as big as that of the East.

As for the popular belief that Asian producers are grabbing an ever-larger slice of exports, the region’s 31% share of world exports last year was not much higher than in 1995 (28%) and remains smaller than western Europe’s. Indeed, the shift towards Asia appears to have slowed, not quickened. Its share of world output and exports surged during the 1980s and early 1990s. Although China’s share has grown since then, this has been largely offset by the decline in Japan, whose share of output and exports has halved.

What about Asia’s financial muscle? Asian stockmarkets account for 34% of global market capitalisation, ahead of both America (33%) and Europe (27%). Asian central banks also hold two-thirds of all foreign-exchange reserves. That sounds impressive, but their influence over global financial markets is more modest, because official reserves account for only around 5% of the world’s total stash of financial assets. The bulk of private-sector wealth still lies in the West. The fact that Asian currencies make up only 3% of total foreign-exchange reserves indicates how far Asia still lags in financial matters.

One thing worth pointing out is that the breathtaking rise of the Asian hemisphere, and China in particular, is no myth. The reality is Asian economies are a lot larger if measured based on purchasing-power parity [PPP] as opposed to GDP figures converted at market exchange rates which tend to understate the continent’s real expansion. Having said that however, the debate over whether to consider GDP based on PPP or nominal GDP as a measure of economic power is endless.

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