The combined output of the developing economies accounted for 38% of world GDP (at market exchange rates) in 2010, twice its share in 1990 (see upper chart). On reasonable assumptions, it could exceed the developed world’s within seven years. If GDP is instead measured at purchasing-power parity, which takes account of the fact that lower prices in poorer countries boost real spending power, emerging economies overtook the developed world in 2008 and are likely to reach 54% of world GDP this year. Even more impressive, they accounted for three-quarters of global real GDP growth over the past decade.
An analysis by The Economist finds that the upstarts also loom larger on many other measures (see lower chart). A landmark was reached last year when emerging economies’ exports edged above half of the world total, up from 27% in 1990. Their rising income has also sucked in more imports, which jumped to 47% of world imports last year. Developing countries accounted for more than half of America’s exports in 2010.
Emerging economies scored another first last year by attracting over half of all inflows of foreign direct investment (FDI). Foreign firms are increasingly lured by these countries’ fast-growing domestic markets as much as lower wages. Their share of outward FDI was a more modest 29% but it is rising rapidly, thanks partly to China’s ample financial resources and its need for raw materials. Commodity consumption is where emerging economies really dominate the world: they consume 60% of the world’s energy, 65% of all copper and 75% of all steel. Yet there is plenty of room for growth. Emerging markets use 55% of the world’s oil but average oil consumption per person is still less than one-fifth of that in the rich world.
Emerging economies still punch well below their weight in commerce and finance, but are catching up fast. Almost a quarter of the Fortune Global 500 firms, the world’s biggest by revenue, come from emerging markets; in 1995 it was only 4%. Emerging economies’ share of world stockmarket capitalisation has surged to 35%, more than three times their share in 2000. They hold an impressive-sounding 81% of governments’ foreign-exchange reserves, but the bulk of private-sector wealth still lies in developed countries. Jonathan Anderson, an economist at UBS, estimates that emerging markets hold about a quarter of global financial assets (cash, stocks and bonds), double their share only ten years ago.
Emerging economies’ lowest score is on debt: they are responsible for only 17% of all outstanding government debt. Over the coming years, massive debt burdens will be a drag on rich countries’ growth. The long-term outlook for emerging economies remains bright, with less debt, more favourable demography and huge potential to lift productivity.
Two decades ago economic models treated the developing world like a dog’s tail, wagged this way and that by rich countries but too small to affect them. Now the tail wags the dog. Their greater weight and speed mean emerging markets drive global growth, commodity prices and inflation.