While in the last year the economies of most countries have been growing at very low rates or, in some cases, shrinking in size, China and India have been quite significant exceptions from that scenario. The latest IMF GDP growth forecast for China this year is now growth of 8.5% and in the case of India it is 5.4%. This compares with -4.4% for the UK and -2.7% for the USA, for example.
On the basis of these differences in growth rates, there has been some comment that China and India will help the world come out of the recession, and what happens in those countries is critical to the economic future of the rest of the world. But this might not be the case.
Clearly the growth in the total economy of each of China and India is good, particularly for the residents of those countries as it will inevitably lead to higher household incomes and better lifestyles. But it is not so obvious that it will help revive the economies of the rest of the world. The reason for that is simply one of relative importance. In 2009 Global Demographics model of household expenditure shows that China accounts for just 7% of the total expenditure of all households in the world, and India a further 6%. As such the rapid growth of these economies is not going to actually lift the world’s economy very much. 8% increase (say) of 13% share of the world’s economy represents just a 1% increase. Helpful, but probably not the solution the world is looking for.
Furthermore, it should be noted that both these countries are typically net exporters, and as such growth in their consumer spending (which is heavily biased to domestically produced products) will probably not result in a significant lift in imports from other countries. As such the probability of this being a stimulus to the rest of the world is low. So the high growth of China and India is good, but it is not the solution to the world’s current economic doldrums.
Our latest report – Global Income and Expenditure Patterns – provides detailed information on the pattern and growth of income and expenditure by households across 71 countries. Please refer to our web site for more information on this report.
