In debates on the direction of the global economy, I have
noticed one concept has been overused and one has been underused.
The first overused concept is
. The second
concept, one less talked about and very poorly understood, is
Most discussions on the world's future -- of U.S. growth, the
direction of the Eurozone crisis, and the China slowdown -- are
clocked into a mindset of globalization. In other words, if
the Eurozone recession spreads to the U.S., the over-simple
globalization discussion says all regions outside Europe feel
pain one-for-one. If China slows down, the globalization
discussion says all regions outside of China feel pain
one-for-one. Ditto for the U.S. growth influence on these
To regain some balance on the subject of 'the world' in your
discussions, consider these facts. I decided to use Purchasing
Power Parity Adjusted GDP numbers held in international dollar
terms to get a fresh 'Regional' perspective. The following was
dredged up from IMF statistics. That is as close as
Apples-to-Apples as I think we can get.
What did I find out?
(A) The entire Asia region comes in at $26T. China itself is
going to be a $13.5T economy in 2013. Japan comes in at
$4.7T. India comes in at $5.0T.
(B) I put together a 'U.S. region' to include the U.K.,
Canada, and Mexico. This entire 'U.S. region' comes in at $23T.
The U.S. nation itself is going to be $17T in 2013, the U.K. at
$2.5T, Mexico at $1.9T, and Canada at $1.6T.
(C) The Euro Area and Central and Eastern Europe come in at
$14T. Germany is at $3.3T.
(D) Latin America comes in at $7.6T. Brazil is at
This GDP data sets us up to better explore the second
Regionalization can lead to sharper insights on differences
among world regions than Globalization.
One key I have noticed about Regions?
Each one has a
Sun and a Solar System
. In Asia, China is 50% of the GDP story. In the U.S.
sphere, the U.S. nation is close to 75%. In Europe, Germany
is 25%. In Latin America, Brazil is 34%.
For example, the Asia region of the world is growing quite
strongly. But within Asia, the dominant country is shifting
from the previous leader, Japan (20%), to the new leader, China
(50%). Japan's current fight over small unimportant islands with
China and South Korea, are good examples of what is happening
inside Asia now. Throw in a sovereign leadership shift, and you
see this region more clearly.
In this Asian space, and in any other region, regionalism
intensifies interactions. Minimizing space economics inside
a region is always more favorable than in a global
framework. Think about shorter flights for businesspeople,
similar cultures and languages, lower transport distances, and
easier logistics. More Chinese, South Korean, and other
Asian growth mean disproportionally more Asian regional activity,
and so on and so on.
Seen through the prism of regionalism, the Eurozone crisis is
clearer too. Germany as a 'Sun' has only 25% of the GDP
strength -- the lowest among world regions. So this region
is inherently the most unstable. No surprise the Eurozone
currency crisis has been protracted. Any European macro
decision is amplified by the political instability inside the
Eurozone region itself.
How about the 'U.S. region'? Here, we see the key
strength of this region vis-à-vis the others. The U.S.
'Sun' is 75% of the story. Decisions and directions are
much more coherent in this region.
Finally, what about Latin America? Brazil as a 'Sun' has
34%, or a third, of the region's GDP. No surprise that
Latin America is more like Europe, with protracted decisions and
Does this sound like what we see? I think so.
To read this article on Zacks.com click here.