Based on 2019 figures, about 78% of the global GDP of $86.31 billion is attributable to the sixteen economies in the trillion-dollar club. If we look even closer, the top five countries in terms of nominal GDP — the U.S., China, Japan, Germany and India — contribute a whopping 55% to the world’s GDP.
Here’s a look at how these five countries are poised to grow in 2020
The United States, the world’s largest economy with a nominal GDP of $21.44 trillion, constitutes one-fourth of the world economy. The U.S. economy is primarily a service-oriented economy with a 77% contribution to GDP. With the jobless rate hitting record lows at 3.5%, contribution to GDP coming from a majority (17 out of 22) of industry groups and the stock markets soaring at all-time highs, this has been a great period for the U.S. economy. However, problems linger with regards to its trading partners and Trump’s trade wars, rising debt levels, and its industrial output, among other issues.
The trouble between the U.S. and China on trade is negatively impacting not just these two countries but many others. A study by UNCTAD concluded that “consumers in the U.S. are bearing the heaviest brunt of the U.S. tariffs on China, as their associated costs have largely been passed down to them and importing firms in the form of higher prices.” During 2018, the U.S. trade deficit with China was at $419.52 billion while it was at $320.82 billion during the first eleven months of 2019. In addition, the U.S. current account deficit, “which reflects the combined balances on trade in goods and services and income flows between U.S. residents and residents of other countries,” was $124.1 billion during the third quarter of 2019 (or 2.3% of U.S. GDP).
The IMF sees U.S. GDP at 2% in 2020, and will decline further to 1.7% in 2021. The U.S. economy is set to grow to $25.8 trillion by 2024 with its GDP per capita at rising to $76,252 from the current $65,111.
China, officially the People’s Republic of China, is the second-largest economy in the world and the fastest-growing trillion-dollar economy. With a GDP of $14.14 trillion in 2019, it makes up 16.38% of the global economy. When compared on the basis of purchasing power parity (PPP), China is the largest economy with a GDP (PPP) of $27.31 trillion. Based on 2019 figures, the size of China’s nominal GDP was lesser than that of U.S. by around $7.3 trillion, the gap is expected reduce to around $4.5 trillion by 2024. China is on the path to become a $20 trillion economy by 2024.
China has had trouble with the U.S. on the trade front; a series of tariffs and counter-retaliatory tariffs, among other restrictions, resulted in a trade war been the two biggest economies. To avoid further escalation, U.S. and China entered a trade deal in early 2020 which involves partial rollback of past tariffs and pause in additional tariff hikes in the first phase. While the trade deal has alleviated near-term cyclical weakness, the unresolved disputes on broader China – U.S. economic relations and ongoing structural showdown is likely to weigh on China’s growth. China is projected to grow at 6% in 2020, and by 5.8% in 2021.
Japan, the third-largest economy in the world, contributes almost 6% to the global GDP. The financial crisis of 2008-09 took a toll on the Japanese economy; it was the only major advanced economy that experienced negative economic growth in 2008 and continued to contract sharply in 2009. The impact of the sub-prime crisis that originated in the U.S. on the Japanese economy was majorly due to the severe impact on Japan’s exports. The economy has remained fragile ever since.
When Prime Minister Shinzo Abe came to power in 2012, one of his priorities was to end deflation while ensuring fiscal discipline. The initiatives to revive the economy have become popularly known as Abenomics. Japan’s GDP touched $5 trillion in 2019 and is expected to grow at 0.7% in 2020. This is an upgrade from earlier estimates, which comes on the back of the fiscal package of $122 billion announced in December 2019. Japan’s economy is expected to expand to $6.26 billion by 2024 based on current growth estimates. Japan has a healthy GDP per capita of $40,846, which is expected to rise to $50,637 by 2024.
With a GDP of $3.86 trillion, Germany is the fourth-largest economy in the world and the largest economy in Europe. The World Bank estimates that approximately 47.4% of its GDP is dependent on the export of goods and services, which makes it vulnerable to external shocks. This became evident during the financial crisis of 2008-09, when the economy contracted by 5.7% (2009). However, ever since it has grown in each of the last ten years amid multiple challenges. In the recent times, the economy has been hit by the sluggish global trade, declines in export orders and industrial production. The continuing trade disputes and Brexit uncertainty, which have weighted on business confidence and investment scenario have further compounded the problems.
Germany is projected to grow at 1.1% in 2020 and 1.4% in 2021, higher than 0.5% in 2019. By 2023-24, Germany and India would be very close to each other in terms of the size of the nominal GDP, making it a close contest for the spot of the fourth-largest world economy. Although in terms of GDP per capita, Germany ($46,563) is way ahead of India ($2,171).
India, the fifth largest economy has often been dubbed as the ‘bright spot in the global economy,’ has seen a substantial downgrade in its growth projection by the IMF. India’s growth has been impacted by country-specific issues such as stress in the non-bank financial sector, decline in credit growth, cooling private consumption, slowing industrial activity and stagnant investments. Steps such as the introduction of a goods and services tax, an insolvency and bankruptcy code, and measures to recapitalize public sector banks are being taken. However, a lot needs to be done to revive its economy, especially in areas such as labor reforms and infrastructure to ensure that India is recognized as a strong contender in the global supply chain.
A 4.8% growth in 2019, has led the IMF “to the reassessment of growth prospects over the next two years” which underpins India’s contribution to global growth. After a disappointing 2019, the IMF projects India’s GDP to expand by 5.8% in 2020 and 6.5% in 2021, on the assumption of adequate monetary and fiscal stimulus as well as subdued oil prices. Based on current projections, India is expected to become a $3.2 trillion economy in 2020 and reach $4.6 trillion by 2024. While India is the third-largest economy in purchasing parity terms, its rank drops substantially in terms of GDP per capita.
Here’s a snapshot of the trillion-dollar economies.
The rankings are based on IMF data for nominal GDP for year 2019 while growth rates are based on IMF projections released in January 2020. Nominal GDP (also mentioned as GDP) is at current prices, U.S. dollars while GDP (PPP) is the GDP based on purchasing-power-parity (PPP) valuation of country GDP, current international dollar. The GDP per capita is based on nominal GDP.
The report has been carefully prepared, and any exclusions or errors in reporting are unintentional.
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