The Gross Domestic Product (GDP) of an economy is a measure of total production. More precisely, it is the monetary value of all goods and services produced within a country or region in a specific time period. While the definition of GDP is straightforward, accurately measuring it is a surprisingly difficult undertaking. And attempts to make comparisons over time and across borders are complicated by price, quality and currency differences. This article covers the basics of GDP data and highlights many of the pitfalls associated with intertemporal and spatial comparisons.
1-United States: Amid domestic challenges and a rapidly changing economic climate, the US economy continues to be the world’s largest, with a nominal GDP estimate of USD 21 trillion in 2019. The U.S. economy accounts for nearly 20% of global production, and still dominates China’s economy. The US economy has an advanced technological and highly advanced services sector, contributing approximately 80 percent of its production. In sectors such as telecommunications, financial services, healthcare and retail, the US economy is dominated by service-based companies.
2-China: In recent decades, China’s economy has experienced incredible growth, contributing to the second largest economy in the world. The nation was ranked 9th in nominal gross domestic product (GDP) in 1978 when China began the economic reform program, hitting USD 214 billion. 35 years later, its nominal GDP jumped 2nd in the order of USD 9.2 trillion.
China has become the world’s manufacturing hub since the implementation of economic reforms in 1978, the secondary sector (including construction and industry) accounting for the largest share of GDP. In recent years, the tertiary sector was driven by modernization in China and in 2013 it became the largest rating of 46.1% for GDP, while a sizeable 45.0% of the country’s overall output remains in the secondary sector. In the meantime, after GDP was opened to the world, the primary sector’s weight has declined dramatically.
The Chinese economy is now the world’s second largest and despite massive growth in this era of 35 years the governments have taken a new approach to the economy called the “new normal.” To prevent an economy’s overheating, governments are leading a controlled slowdown, with growth slowing year after year, since 2010. The economy has become progressively sluggish. The economy will grow by 6.3% in 2019, which does not hint at anything but is very much at odds with over 10% annual growth just a short time ago.
3-Japan: In terms of the nominal GDP projection that it should reach USD 5.2 trillion in 2019, the Japanese economy currently ranks 3rd. Japan was the equivalent of today’s China before the nineties and quickly developed during the sixties, seventies and eighties. Yet Japan’s economy hasn’t been as good since that time. In the 1990s, also known as the Lost Decade, economic growth slowed dramatically, mainly because of the bubble in Japan’s asset prices. In reaction, government deficits were huge for the funding of major public work projects, but this does not seem to have taken the economy out of ruin.
The Japanese Government initiated numerous structural reforms aimed at reducing excess liquidity from financial markets, but between 1999 and 2004, it led the economy on several occasions to deflation.
The next step was QE (Quantitative Easing), where the interest rates went down to zero and the money supply increased to boost inflation expectations. The economy finally seemed to respond after a time of not so good QE performance. At the end of 2005, both the US and the European Union outperformed the economy in terms of economic growth.
4-Germany: During 1999 to 2008, the average GDP of Germany increased by 1.6% per year in the ten years prior to the Great Recession. The German economy plummeted 5.2 percent in 2009 as businesses worldwide cut their investment projects in light of the financial crisis, despite Germany’s reliance on exports of capital goods. With a solid 4.0 percent growth, Germany’s economy bounced back the following year. In the following years the ongoing euro zone crisis, which has weakened demand in the Southern European countries, was overshadowed. As a result, the economy of Germany developed at an incredible pace every year from 2011 to 2013.
5-United Kingdom: The UK’s gross domestic product increased 2.8 percent per annum on average in the 10 years before the Great Recession from 1999-2008. The financial crisis and the credit crunch impacted the economy very badly as a result of overinvestment in the housing market and consumers ‘ high reliance on credit. In 2009, GDP fell 5.2%, mainly due to the collapse of fixed private capital. In 2010, however, GDP expected to increase by 1.7%. Nonetheless, growth wasn’t as high during the three years that followed; the average growth of GDP in the 2011-2013 period was 1.0 percent. Nevertheless, Brexit turmoil continues to threaten the economies since then, growth has largely rebounded.
Many economists and financial institutions expected the economy to hit if the UK voted to leave the EU before the referendum. Before the referendum The prospects of the UK economy have become increasingly unpredictable since the Brexit referendum in June 2016, but the economic Armageddon some of them expected has still to be introduced. Nevertheless, since the beginning of 2017, growth has stuttered and dropped considerably behind the EU average.
Brexit talks are still to be completed between the UK and the EU, and there is not much time left to complete them. Growth will slow next year, with increases in private consumption and fixed investment being slowed down by Brexit’s overall uncertainty. Nonetheless, the downturn should be curbed by a stronger external sector and robust global demand.
The UK will remain in the top five economies by 2020 with a USD 3.2 trillion nominal GDP. Our panelists predict that GDP growth in 2018 was 1.4% and 2019 was 1.5%.