East or famine

Asia’s economic weight in the world has risen, but by less than commonly assumed.
It is not new that we have a feeling the world’s economic centre is moving to the east. But the global financial crisis, many argue, has given the shift in economic power from America and western Europe to Asia a big shove.

China overtook Germany in 2009 and it became the world’s biggest exporter. And now it looks like China is becoming the world’s biggest economy within ten years. It also has certainly become more important to bankers and businessmen, accounting for a record share of many companies’ profits last year.

But if we take a closer look at the figures from the last years, we see that the shift in economic power from West to East can be a bit exaggerated. Asia’s GDP stays slightly smaller than western Europe’s GDP. This means that the output of the rich West is still almost twice as big as that of the East.

The rise of the East is not a myth. The numbers clearly show us that Asia’s export keeps on growing. However, these GDP numbers show us Asia’s real expansion.
Asia’s GDP numbers are clearly lower than the GDP of western Europe and this because of the Asian financial crisis in the late 1990s. More importantly, prices of many domestic products are always cheaper in low-income countries, implying that households’ real spending power is bigger.

If GDP is instead measured at purchasing-power parity (PPP) to take account of these lower prices, Asia’s share of the world economy is higher and more steadily.

Bram Verstraete

http://www.economist.com/business-finance/displaystory.cfm?story_id=15579727