Key Trends in Globalisation

The incredible shrinking UK economy - an update

Earlier this year this blog published an article entitled ‘The Incredible Shrinking UK Economy’. It noted: ‘The magnitude of the blow suffered by the UK economy since the beginning of the financial crisis is very considerably minimized by not presenting it in terms of a common international yardstick. Gauged by decline in GDP, using a common international purchasing measure, dollars, no other economy in the world has shrunk even remotely as much as the UK.’ .

Data at that time was only available up until the end of 2010. Since then the World Bank has updated its data to cover 2011 and the pattern remains the same.

Taking first the situation of the world’s major economies, the G7 and BRICS, this is summarised in Table 1. The comparison made is between the last year before the financial crisis started, 2007, and the last available comprehensive international data – for 2011. As may be seen the $381 billion decline, in current dollar terms, of UK GDP is, without comparison, the worst of any major economy – indeed it is easily the worst in the world. As a percentage of world GDP the UK lost 1.6 percentage points – easily the worst performance of any European economy. The advance of all BRICS economies is also clear from this data. 

Table 1

 

Taking the situation within Europe this is shown in Table 2. As the UK, Ireland, and Iceland are the three economies which have suffered the biggest losses in GDP in dollars during the financial crisis this table may also be taken to show the ‘sin bin’ of world economic performance. The way in which the UK economy has declined in absolute terms far more than any other European economy is again evident.

Table 2

Where does this leave the UK in the world rankings of economies? In terms of current dollar exchange rates. as shown in Table 3, the UK has slid from 5th to 7th position under the impact of the international financial crisis – being overtaken by France and Brazil

Table 3

 

However, as is well known, current exchange rates substantially understate the size of developing economies compared to calculations in internationally equivalent prices (Parity Purchasing Powers - PPPs). This is particularly strikingly the case for India which at current exchange rates is only ranked 10th but in terms of PPPs in 2011 overtook Japan to rank as the world's 3rd largest economy . In PPPs the UK has declined from 7th to 9th position – also being overtaken by France and Brazil on this measure.

Table 4

 

The data is therefore clear. In terms of its real international position the decline in the position of the UK is by far the worst of any major economy. There is no reason to change the analysis. In terms of international comparisons the UK’s is truly ‘the incredible shrinking economy’

China has the fastest growth rate of consumption of any major economy in the world

One of the most stupid economic claims, sometimes recycled even in economic and financial media which should know better, is that China has a slow rate of growth of consumption. On the contrary China has the fastest rate of growth of consumption of any major economy in the world.

The data for the latest 10 year period for which data exists is set out in the table below. Only Russia comes close to matching China’s increase in consumption in that period. China’s rate of growth of consumption is sixty per cent higher than India's, three times as fast as South Korea's and approximately ten times as fast as the main G7 economies.

What the world economy should learn from China

I have a new article at the Guardian's Comment is Free analysing China's economic success both during the international financial crisis and in general since since 1978. It analyses the theoretical bases of China's economic policies in terms of both Chinese and Keynesian economic theory. The article starts: 

'Few things better illustrate the difference between the state of China's economy and that of the rest of the world than the fact that its newly announced GDP growth figures of 7.6% were analysed as a "slowdown". In any other major economy this would have been considered blistering growth threatening overheating. Instead, it is clear China has room for further stimulus measures in the second half of the year.

'Indeed, as the international financial crisis has unfolded, there have been few starker contrasts than those between China, the US and the EU. Europe has combined loose monetary policy with little or no stimulus to the productive economy – the "austerity" approach. The result has been that the EU's economy shrank by 2% over four years – the UK's shrank by 4.4%. The US has combined loose monetary policy with a consumer stimulus delivered via the budget deficit. The result? The US economy has grown by 1.2% in four years. India, which followed the US model of a budget deficit delivering a consumer stimulus, saw its growth decline from 9.4% in the first quarter of 2010 to 5.3% in the first quarter of 2012.

'Meanwhile China, which combined expansionary monetary policy with an investment-led stimulus, has experienced more than 9% annual average growth throughout the four years of the financial crisis.'

The rest of the article can be found here.