Global Balance Of Economic Power Is Shifting

Global Balance Of Economic Power Is ShiftingEbbing and flowing economic power around the globe has caused the British government to look at how changing wealth patterns will affect government policy – but they are also a useful indicator for investors as well.

The report points out that financial power is not shifting inside traditional national boundaries, but in other more subtle ways.

The paper, Beyond Geography: Shifts In Global Economic Power, is aimed at promoting discussion about how to tackle these changes and is flagged as the first chapter in ongoing work by the Foreign Office.

Five economic indicators

The Foreign and Commonwealth Office has highlighted five key economic pointers that should influence thinking over the next few years:

  • As people become richer they tend to move from rural areas to cities
  • Urbanisation from this population shift is triggering a demand for commodities as the newly wealthy want to spend their money on better housing as well as more personal goods and services
  • Wealth distribution in many countries is seen as unfair, which could undermine political and economic stability
  • Families can afford to better educate their children, which translate into increasing migration of students and workers across borders to find work and better pay
  • A wealth gap between the young and old will force governments to change their economic policies – for instance, the choice may come down to spending on education or long-term care

The authors look at how the global economic focus will shift east and south and argue that statistics predict that by 2030, Asia excluding Japan and Sub-Saharan Africa will generate around 50% of nominal global GDP.

The figure for 2010 was 20%.

Subtle shifts

Meanwhile, the nominal GDP of the US, European Union and Japan will drop from around 60% in 2010 to 30% in 2030.

The result is a narrowing of the economic gap between emerging and developed countries.

“The story is a lot more complicated,” says the report. “Economic power is not only shifting among nations, but between different groups in the population. This shift is more difficult to analyse and deal with.

“The balance of power involves transfers between rural and urban dwellers, commodity consumers to producers, workers to those who control capital, low skilled to highly skilled workers and from the young to the old.”

The report explains that these switches in economic power are all related to each other and less to do with national but international movements between advanced and developing economies.

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