Worries About the EU Falling - Behind the US are Misplaced: But global geopolitics really are being transformed by the rise of Asia| World Economics

Thought for the day

Worries About the EU Falling
Behind the US are Misplaced

But global geopolitics really are being transformed by the rise of Asia

Last updated: 7 July 2024

There has been much discussion of late by senior EU politicians (President Macron most recently in his much discussed "Europe - It can die " speech) and journalists (notably FT journalist Gideon Rachman, who suggested that American GDP was smaller than that of the EU in 2008, but is now 50% bigger), that the EU is falling far behind America in GDP terms.

Such alarmist views stem from the use of the US dollar in inter country comparisons.

One hundred US dollars would buy only around 63 euros in mid-2008. In mid-2024 they will buy far more - over 90 euros. Any comparison in dollars using such periods will inevitably produce comparisons that strain credibility. The same analysis in Purchasing Power Parity terms suggests relatively little change in real living standards over this period, and is a far better guide to the on-the-ground reality.

Politicians and journalists would be better employed looking at comparisons of the growing size of Asia compared with the EU and the USA. The chart below illustrates the growth of China and India compared with the US and EU, in Purchasing Power Parity terms, with adjustments made by World Economics for outdated Base years in both China and India, and Informal economies (significantly bigger in Asia than in the West).

GDP Growth in India, China, the US and the EU

Worries About the EU Falling - Behind the US are Misplaced

There have clearly been modest variations in the relative sizes of the US and EU economies, but this variation is as nothing compared with the growth of Indian and Chinese GDP. The Chinese economy overtook the US a decade ago, and is likely to be around 50% bigger than America within ten years from now. The fast growing Indian economy is likely, on present trends, to overtake the US within the same time.

Nothing is certain about such estimates. GDP data from both China and India is rated C (use with caution) by World Economics, and far from perfect. Any number of factors may derail economic growth in these countries over the next decade. But the fact is that Asian countries are growing faster than western countries (see table below), and it appears very likely that India and China in particular are likely to continue to outpace America and other countries in the West.

Compound Annual Growth Rate (CAGR) & Share of Global GDP Growth
Using GDP PPP for 2013-2023

It may take much longer than a decade for America to fall to the number 3 slot in the global GDP hierarchy, but the possibility also exists the change may happen faster...

More data on China, USA, India and the EU