The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Wednesday, August 25, 2010

Why the US economy is not that important, and population growth is key

Enclosed below are some interesting charts from UBS's economics team. The first shows that the US only accounts for around 21% of the global economy. Europe is exactly the same size while Japan is just 6%. Asia (23%) and the Rest of the World (29%) are actually more important than either the US or Europe. Yet you would not know this judging by financial markets.

The next chart offers a country-by-country breakdown of world economy shares as at 2008.

What is more interesting is how these shares will change in the next decade. China will become the world's largest economy, rising from 11% to 18% while the US will fall from 21% to 16%. India will more than double its share from 3% to 7%. This begs the question: which countries is Australia most leveraged to?

The next two figures show the shift in the composition of world trade over the last 20 years. And it is indeed a remarkable change. The developing economies' share of world imports and exports has risen in lock-step from sub 20% in 1998 to nearly 40% by 2008, with the developed economies suffering accordingly.

This has contributed to an emerging growth gap between the developing and developed worlds, which is also closely related to the vastly different demographics in these countries.

Finally, this cross-country analysis implies a very robust and seemingly linear relationship between population growth rates and GDP growth over the period 1988 to 2008.