Global Economy: Looks Good from Afar But Is Far from Good

Gross world product increased to just over $83 trillion in 2012, a 4.85 percent increase over 2011.1 (See Figure 1.) On the surface, this metric supports the argument that the worst of the global recession is in the past—and it is. However, closer inspection shows that while there is at least tepid growth globally, growth rates like the ones experienced in the prior 20–25 years now seem to be taking place in emerging economies. In fact, the total gross domestic product (GDP) of emerging economies is now roughly equal to that of all the advanced economies.2 Nominally, a growth rate just shy of 5 percent seems reasonable, but this rate of growth continues a pattern of slowing growth rates since 2010 and 2011, which were 6.35 and 5.67 percent, respectively.3 Ironically, one trend that seems continuous since 1980 is that the percent change in global GDP varies widely. (See Figure 2.)

The gross world product is the sum of the GDPs of all countries. This typically includes levels of consumption, investment, government spending, the cost of imports, and the proceeds from exports.4 Because of various transaction costs, floating exchange rates, and barriers such as tariffs, a metric is applied to put purchasing power for countries on even footing. This factor, applied to the figures in this article, is called the purchasing power parity exchange rate.5

Economic activity continued to be a muddled picture in 2012, with some parts of the globe seeing relatively strong growth while others had tepid growth and some actually experienced some negative growth. In recent years, developing Asia has had by far the highest growth rate of any region.6 (See Figure 3.)

Global Economy Figure 1

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