Does anyone care about global GDP?

Posted by: Paul Donovan

07 Feb 2020
  • Media love to ask how the world economy is doing. There is no easy answer. The global growth outlook from Venezuela is very different from the global growth outlook from France. The global growth outlook of a German investment goods maker is very different from the global growth outlook of a Korean consumer goods maker.
  • Different areas of the economy have different importance to different people. The most common measure of global growth shows China's economy to be much larger than the US economy. But this uses a made-up foreign exchange to measure economies' size.
  • Using real world exchange rates, China is smaller than the US. But for equity investors, S&P earnings from China are a tiny proportion of S&P earnings from the US.
  • Consumer spending is about two thirds of the global economy. But a lot of German exporters sell investment goods. If investment and consumer spending are growing differently, using global GDP growth to calculate German exports will give the wrong result.
  • The coronavirus will change lots of global growth forecasts. But asking "how is the world economy doing?" is the wrong question. The first question to ask is "why do you want to know?".

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