With yet another crisis in Europe, it’s worth getting a little perspective on the importance of the region, showing how it has changed over time. To do this, we have just downloaded simple data on gross domestic product (GDP) from the International Monetary Fund in US dollar terms.
Twenty years ago, Europe was a dominant area of the global economy. In 1992, the European Union accounted for 32% of world GDP with the euro area at 26%. By comparison the United States was at 26% with “Developing Asia” and “Newly industrialised Asia” at 8% of output.
Fast forward to 2012 and the European Union was 23% of world GDP with the euro area at 17%. The United States had also lost ground to 22% while Asia’s importance had grown markedly. Last year it was estimated that “Developing Asia” and “Newly industrialised Asia” accounted for 21% of the world economy.
This year it is estimated that Asia will account for 22% of the world economy, the same as Europe and the United States.
But using purchasing power parity, which is regarded as a better way of comparing income across economies than using an exchange rate like the US dollar, the results are more revealing. This year Asia will represent almost 31% of the global economy with the United States and European Union close to 19% and euro area at 13%. It is time investors adjusted for the new realities.
The week ahead
For those still of the belief that 2013 has only just begun, it may come as a shock that the first quarter is coming to a close and Easter is upon us with Good Friday celebrated in the coming week! And to round out the quarter there is a spattering of indicators, notably the inflation gauge, population data and the financial accounts on Thursday. In the US there are no real highlights but it’s worth noting that personal income and spending figures are slated to be released on Good Friday.
In Australia, the week kicks off on Tuesday with a speech by the Reserve Bank governor. As is always the case, if the governor talks, investors and traders alike keenly listen. Glenn Stevens will be speaking at the Australian Securities and Investments Commission (ASIC) Annual Forum.
On Wednesday the Reserve Bank is again in the spotlight when the half-yearly Financial Stability Review is published. A taste of this report has already been provided in the latest board minutes. The RBA board members noted “that households’ net wealth had risen recently” and that low interest rates had helped debt servicing capacity. On the other hand it highlighted weaker business profits and that business failure rates had risen, in part due to the higher exchange rate.
And Thursday, could suitably be dubbed “Super Thursday” with the Bureau of Statistics to release demographic statistics (population) as well as the Financial Accounts, job vacancies figures and yet another tranche of Census data. In addition the Reserve Bank issues the money supply and other financial aggregates including private sector credit.
The is no consensus of economist forecasts for the data releases although private sector credit probably grew at a modest rate of 0.3% in January. The demographic figures should confirm that population is growing at close to a 1.5% annual pace, providing momentum for the economy.
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