Tuesday, January 25, 2011

We're In A New Super-Cycle of Global Economic Growth. World Economy Could Double by 2027

The Standard Chartered Bank in London recently released an interesting study called "The Super-Cycle Report, which suggests that in 2000 we entered a new "super-cycle" of global economic growth that will last until 2030, where "super-cycle" is defined as:

“A period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanization and technological innovation, characterized by the emergence of large, new economies, first seen in high catch-up growth rates across the emerging world.”  

From the paper's introduction:

1. The first super-cycle took place during the second half of the 19th century, from 1870 until 1913, the eve of the First World War. At that time, the world economy witnessed a significant step-up in its rate of growth, rising 2.7% on average annually in volume, or real, terms. That was a full 1% higher than the average growth rate seen during the previous half-century. America was the big gainer, moving from the fourth largest to the largest economy. 

2. The second super-cycle was after the Second World War until the early 1970s. World growth averaged a huge 5% per annum, again in real or inflation-adjusted terms. Japan and the Asian tigers saw the biggest gains over this time. Japan, for instance, moved from 3% to 10% of the world economy.

The rapid growth seen during both of these periods reflected a number of factors. In particular, the first super-cycle saw greater use of new technologies that had emerged during the Industrial Revolution, and the emergence of a new major economy in terms of the USA. The second super-cycle reflected many factors, in particular the post-Second World War reconstruction, involving investment, rebuilding and catch-up, plus both the emergence of a sizeable middle class in the Western world and of exporting nations across Asia. That cycle was also characterized by cultural shifts and a baby boom. A super-cycle would also appear to need the backdrop of relative peace, or certainly no global war, and stable monetary policies.

The third super-cycle started – in our view – in 2000. The period between the second and third super-cycles, from the early 1970s to 2000, was characterised by ongoing economic challenges in the West, a slowdown in Japan, the collapse of the Soviet Union, debt and currency crises in Latin America, and the relatively small size of China and India, both of which were in the early stages of opening up. There was no dynamic driver for the world economy. In 2000 the world economy was $32 trillion in size. Now, following the global recession and financial crisis, the world economy is almost twice the size of a decade ago. There was a significant contraction as a result of the crisis and global recession, but now the world is back to its pre-recession peak. Next year, based on conservative growth assumptions, this could rise to $64.7 trillion. Global trade has also recovered to pre-recession levels.

By 2030 – the time period for this analysis – we believe that the world economy, on the projections laid out here, would rise to $308 trillion, which would equate to $129 trillion in today's prices and dollars, and would be $143 trillion, keeping prices constant but allowing for some emerging-market currency appreciation (see chart above).

These are big numbers. Really big."

MP: If these estimates are accurate, it would mean that the global economy will double from its current size of $62 trillion to $126 trillion by 2027. 


At 1/25/2011 6:33 PM, Blogger Benjamin Cole said...

Bring on the boom-times, baby, I am so ready.

At 1/25/2011 8:31 PM, Blogger Buddy R Pacifico said...

Two observations about post WWII Super-Cycles:

The world depends on the U.S. for overall peace and stability as well as promoting the premises of capitalism. Korea, Vietnam, Iraq and Afghanistan are relatively contained wars.

The U.S. needs to be careful of its massive global inbalances of trade and fiscal spending deficits. The results could be euphoric boom followed by disastrous bust of unmanagable proportions. If the U.S. suffers a prolonged economic malaise then, the underpinnings of capitalism will be in peril for much of the world.

At 1/26/2011 12:13 AM, Blogger PeakTrader said...

The article states:

"...from the early 1970s to 2000...There was no dynamic driver for the world economy."

What about the Information Revolution that began around 1982, the beginning of globalization around the same time, implementing more free market principles (e.g. lower taxes and deregulation), and countries becoming democracies?

The recent "Super-Cycle" originated in the U.S. and spread throughout the world.

U.S. production and the efficiencies that followed allowed the U.S. to become a "Black Hole" in the global economy, attracting imports and capital, and even attracting the foreign owners of that capital themselves.

At 1/26/2011 12:58 AM, Blogger PeakTrader said...

GDP statistics - countries compared - NationMaster

In 1960, U.S. GDP was over seven times more than the U.K., which was the second largest economy. France was third, China fourth, and Japan fifth.

In 1990, U.S. GDP was less than twice the size of Japan. Germany was third. China was eleventh.

In 2006, U.S. GDP was over three times more than Japan, which was second. Germany was third, China fourth, and U.K. fifth.

My comment: GDP data in 1960, 1990, and 2006 reflect that countries rose from the ruins of WWII, and show the relative rise and fall of Japan.

At 1/26/2011 6:46 AM, Blogger geoih said...

Somebody plots an equation that obviously increases at some steady and arbitrary rate over time and this is somehow evidence of the future?

Should we maybe be building a temple or offering sacrifices?

At 1/26/2011 10:04 AM, Blogger PeakTrader said...

There was a thousand years of economic stagnation between the fall of the Roman Empire (in 476) and the Renaissance (1300s to 1600s), known as the "Dark Ages."

World history by per capita GDP

"...India and China in world GDP used to be very high till about 1600 AD, but started declining thereafter as they missed the industrial revolution. By 1600...China accounting for 29% and India 22.4% of world GDP.

In 1 AD, India’s GDP per capita was $450, as was China’s. But Italy under the Roman Empire had a per capita income of $809. In 1000 AD, India’s per capita income was $450 and China’s $466. But the average of the West Asian countries, such as Turkey and Iraq, was much higher at $621. In terms of general prosperity, therefore, it was the Arab world that was doing well a millennium ago.

By 1500, though, new centres of prosperity had emerged. India’s per capita income was $550 and China’s $600 in 1500. The Arab world had declined. But standards of living in Western Europe at that time had already gone far ahead. Italy topped the table, with a per capita income of $1,100, the Netherlands following with a per capita income of $761. This was the Italy of the Renaissance, the Italy of Michelangelo and Leonardo da Vinci, of Raphael and Titian. The UK was not far behind, with a per capita income of $714.

By 1600, the centre of Europe had shifted northwards and the golden age of Holland had begun. Dutch per capita income was $1,381 in 1600, while Britain in Shakespeare’s time had a per capita income of $974.

Recall that 1600 was the year the East India Company was founded. In contrast, India’s per capita income continued to be $550, while China’s was $600.

It wasn’t till 1981 that India had a per capita income of $977, beating that of Britain in 1600. And it wasn’t until 1993 that India’s per capita income of $1,399 surpassed what the Dutch had achieved in 1600.

At 1/26/2011 11:05 AM, Blogger morganovich said...


i'm with you.

the headline here ought to read "chartered bank discovers the power of compound interest".

i know a proctologist with a flashlight that can show you where these numbers came from.

At 1/26/2011 12:00 PM, Blogger Jason said...

Hmm, these numbers remind me of a quote: All models are wrong, some are useful.

At 1/26/2011 1:59 PM, Blogger misterjosh said...

Why do I get the feeling that most of the US government is deciding to sit this one out?

At 1/27/2011 9:40 AM, Blogger Hydra said...

It remains to be seen what effect such growth wil have on the environment. I the people who beliee that what we are doing now is unsustainable are only 10% correct, then super economic growth is going to bring with it unprecedented environmental challenges.

At 1/27/2011 1:24 PM, Blogger Junkyard_hawg1985 said...


I think it depends on where the growth is. Currently, the wealthy countries tend to have the better environments. It is the poor countries who often have unsanitary water treatment systems (if any at all) and a host of other environmental problems (i.e. toxic chemicals dumped on side of roads). Raising the standard of living in these poor countries should actually improve the environment.

At 2/01/2011 9:28 PM, Blogger VangelV said...

MP: If these estimates are accurate, it would mean that the global economy will double from its current size of $62 trillion to $126 trillion by 2027.

For that to happen you need new energy sources that are not on the horizon. And no Mark, shale oil that consumes 7 barrels of oil to produce 10 will not do the trick.

That said, if you really believe what you are writing you better be heavily invested in energy, food, basic materials, gold, silver, fertilizers, and other basic inputs that are needed to feed a growing economy but have supply issues on the horizon.


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