Emerging Markets vis-à-vis Shift of Economic Center of Gravity
“Economic Center of Gravity is calculated by weighing locations by GDP in three dimensions and projecting the center to the nearest point on the earth’s surface”
From the year 1 to 1500, the World’s Center of Economic Gravity which is a measure of Economic Power by Geography i.e. straddled the border between India and China, the countries with the globe’s largest populations. The urbanization and the Industrial Revolutions started in Britain and then swept across continental Europe and the US.
In the context referred above, the Center of Gravity moved to the North and West i.e. first to Europe and then towards North America. Soon after the World War II and thereafter in the second half of 20th Century, the economic pendulum gradually began to swing back to the East. Starting in the year 1950, Europe started recovering, Japan also started embarking upon a remarkable recovery in rebuilding its Industrial Infrastructure and grew to become a second largest economy in the world by the year late 1980s. Thereafter, Japan was quickly joined by South Korea. The process got accelerated when Asia’s slumbering giants began to stir. Finally, economic reform took hold in the World’s two most populous nations i.e. India and China.
China began to liberalize its economy in the year 1978 and grown for three decades around @ 10-9% per annum. While India started little late in the year 1990 by rapidly rising in the information technology sector. By the year 2000, the US with 4% of world’s populations accounted for 1/3 of economic activity and 50% of world’s global market capitalization.
Then came the year 2008 financial crisis in US (also known as subprime crisis) resulted into global recession. In the year 2013, out of $1.8 trillion of global economic activity, China alone accounted for $ 1 trillion or 60%.
Now the recession has gripped the Chinese economy (YUAN devalued) emerging economies such as India, Indonesia, Russia and Brazil are taking over as major forces in global manufacturing. Present Prime Minister of India Shri Narendra Modi who has already invited the leading manufacturers to invest in India for “Make in India”, has already started showing the results. In fact, around the globe, manufacturing value addition in the global economy has doubled since year 1990 from $ 5 trillion to $10 trillion today and the share in that value addition is generated by the above referred Emerging Economies i.e. from 21% to 39% over a past one decade.
The share of global Foreign Direct Investment (FDI) going to emerging economies rose from 34% in the year 2007 to 50% in the year 2010 and over 60% in the year 2013. The annual consumption in emerging economies shall be reaching $ 30 trillion by the year 2025. Therefore, by the year 2025, the economic center of gravity is expected to be back to Central Asia, just North of where it was in the year 1.
UK took 154 years to double economic output per person and it did so with the population of 9 million people (in the beginning). US achieved the same feat in 53 years with 10 million people (in the beginning). India and China have done it only in 16 and 12 years respectively with about 100 times as many people. In other words, the economic acceleration is roughly 10 times faster than the one triggered by UK’s Industrial Revolution and is 300 times of the scale i.e. an economic force 3000 times large.
Imagine at what pace India and other Emerging Markets are going to capture the future markets.