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2009 Vol.1
Changing Framework of the Global Economy

2009/01/01

This report will examine the changes in the framework of the global economy through the year 2025, based on typical methods of economic analysis such as dynamic demography, potential growth rate, and purchasing power parity.
First, I will evaluate potential growth rates in the various respective countries and regions, and investigate long-term average growth rates by taking into account their dynamic demographic changes and capital stock. Accompanying the 2008 financial crisis, the process of adjusting external imbalance in the United States carries the risk of becoming a suppressing factor for global economic growth. However, in the United States, increase in the government sector’s investments will most likely offset the probable increase of savings in the household sector, and the possibility is high that the adjustment of imbalance will proceed gradually. Movements of the foreign currency exchange rates indicated by purchasing power parity suggest the increase in significance of the Chinese economy.
However, it appears that China has excessively built up its capital stock during the recent high growth phase. Because of this, the next few years will likely be a period in which, through entering a capital stock adjustment phase, China’s growth rate will shift from double digits to a moderate 6% level. Still, as its economy continues to grow, China’s imports will surpass those of the United States by around 2020, and there will be a change in the current mono-polar structure in which personal consumption in the United States has acted as the engine of global economic growth.
As China’s economy grows, its middle-income class expands. China’s economy is a new frontier in generating demand, while at the same time a factor in providing a massive volume of middle-income workforce. Corporations in developed countries are able to receive new business opportunities. On the other hand, laborers in the developed countries may lose employment opportunities, because the migration of jobs to low-wage countries, which were limited to certain sections of the manufacturing sector, will be broadened to levels that are more sophisticated. It is advisable that developed countries respond to the expanding disparity caused by the polarization of their middle-income class.

Report