Tuesday, 29 October 2019

Trends in GDP and Per Capita GDP for Select Countries

GDP on its own may not present a complete picture of growth, therefore, per capita GDP has been included here to better understand trends in growth. When we look at GDP and per capita GDP growth over the past six decades for major economies it shows that Asian tigers are roaring.

But when we look at growth in the past three decades it is really the Chinese miracle that attracts your attention. Since the decade starting from 1991, Japan has been stuck in a quagmire. India has a CAGR of around 8% for the past three decades. So China and India have been leading global growth in the more recent past. 
To be fair to the advanced economies you need to look at the base effect and to get a better picture of growth. For a country like the United States with GDP of $ 20 trillions (2018) even a 2% growth transforms into $400 billions which is 15% of India's 2018 GDP. 

Second, for India and China to grow someone has to buy their exports - whether it is software services or manufacturing goods or any others. For some countries to run surpluses, some have to run deficits. We live in an interconnected world. So if the advanced economies slowdown it is going to impact the emerging markets growth.

Although, consumption led growth is a strong point of countries with large populations, no economy can decouple itself from the rest of the world. Moreover, if imports increase and exports decrease (as is the case with increased consumption) deficits increase and currencies fall under stress. 

Third and a more important aspect, is the standard of living and we need to look at the per capita GDP figures to get a better picture. For India and China, huge populations weigh down the per capita  figures. Per Capita Income of all other countries is higher than India and China which in most cases should translate into better standards of living. 

Prof Joe Stiglitz, in one of his addresses at the Norwegian School of Business, remarked that between 1978 and 2017, China was able to move 740 million people out of poverty to a comfortable middle class living. This kind of sets the standard for other emerging markets in terms of poverty alleviation.

One interesting comparison between India and US - India's GDP in 2018 is close to that of US GDP in 1980 and at around the same time Regan tax cuts were introduced which perhaps (different economists have different views) helped prop up their economy. Only time will tell us whether Modi's tax cuts propel India's industry and what India has in store for herself. (and the world!)

For emerging economies huge populations are both a boon and bane. For example, India has experienced growth thanks to its booming services sector, thanks to its large population. At the same time, when we look at the trends in the per capita GDP, population explosion has dampened the growth of emerging markets including India. 


So the key for emerging economies lies in being able to harness the energies of their people by focusing on job creation and broad based growth. 



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