Ranga Chand is an international economist and is president of Chand Carmichael & Company
It is now almost three years since the Great Recession ended and profound changes are underway in the world. The global economic axis is shifting fundamentally and a comparison between the major advanced economies of the G7 and the seven largest emerging economies – the E7 – reveals this startling change.
Collectively, the E7 bloc which includes China, India, Indonesia, Brazil, Russia, Turkey and Mexico now accounts for close to 31 per cent of world GDP, up from 19 per cent twenty years ago. During this same time period, the G7 has seen its share of world output fall from 51 per cent to 38 per cent.
It is these divergent trends in growth that have significantly altered the global economic landscape. To put things in perspective, over the four year period from the end of 2007 through to 2011, only four of the G7 economies have regained their pre-recession levels of output. Canada has been the best performer in this group, despite the fact that it is still only 3.1 per cent larger than it was in 2007. The size of Germany’s economy, the second-best performer, is 1.8 per cent larger while the U.S. and French economies have just managed to move ahead of where they were in 2007. The United Kingdom, Japan, and Italy have failed to recover the output lost from the 2008-09 recession. The U.K. economy is 2.6 per cent smaller than it was in the pre-recession peak year of 2007, Japan’s is 4.2 per cent smaller, and Italy’s is 4.7 per cent smaller (see table below).
In contrast to the G7 countries, the production of goods and services is larger today in all the E7 economies than it was in 2007. China’s economy is 44.6 per cent larger than it was before the crisis and despite a slowing down of growth its GDP is likely to expand by another 8 per cent to 9 per cent this year. Similarly, India’s economy is 34.6 per cent larger, Indonesia’s is 25.2 cent and Brazil’s is 16.5 per cent bigger. Even Mexico’s economy, which is 3.9 per cent larger and the E7’s worst performer, has outperformed every single member of the G7.
It is now abundantly clear that a sustained recovery remains stubbornly elusive for the G7 economies. Despite massive amounts of monetary and fiscal stimulus, the rate of growth in all of the major advanced economies has been sharply below their respective long-term averages. Moreover, constrained by large debts and deficits, not a single G7 country is expected to achieve growth rates above, or even at, its long-term average for several more years.
In contrast, since 2007, growth in the economies of the E7 has barely deviated from their long-term averages. By 2020 this bloc, given the current trends, will surpass the G7 and account for a greater share of world output. This, in turn, will lead to a shift in the current geo-political power structure. Whether this will be muted or more pronounced remains to be seen.
