- From the US producing more oil than Saudi Arabia, China becoming the World’s largest economy and Queen Elizabeth II becoming history’s longest serving monarch, 2015 looks sets to become a watershed year. With thanks to The Economist, we outline some very interesting observations for the new year to come.
American energy self-sufficiency
- Less than a decade ago the concept of ‘peak oil’ and impending energy crisis was front page news. However new technologies like fracking, and renewed exploration activities have not only resulted in the USA achieving energy independence but in 2015 it will also produce more barrels of oil than Saudi Arabia and become a net exporter of energy products. Many aspects of international relations are built around American access to oil and whilst the shale-gas revolution will no doubt benefit consumers with lower bowser prices, the longer term shifts in geopolitical agendas may not be as helpful for global stability.
Economic World Centre Shifts East
- Whilst the centre of global political power has long been debated, new research from Danny Quah of the London School of Economics has produced metrics to calculate the dynamics of the global economic centre of gravity; the average location of economic activity across geographies on Earth. The calculations here take into account all the GDP produced on this planet. LSE found that in 1980 the global economy’s centre of gravity was mid-Atlantic. By 2008, from the continuing rise of China and the rest of East Asia, that centre of gravity had drifted to a location east of Helsinki and Bucharest. In 2015 it will reach Iran. Extrapolating growth in almost 700 locations across Earth, it predicts the world’s economic centre of gravity to locate by 2050 literally between India and China. Observed from Earth’s surface, that economic centre of gravity will shift from its 1980 location 9,300 km or 1.5 times the radius of the planet.
- This has major policy implications. If soft power mirrors but lags economic power, then the source for global and political influence will be similarly gradually shifting east over the next 50 - 100 years. Policy formulation for the entire global economy, and global governance more generally, will no longer be the domain of the last century's rich countries but instead will require more inclusive engagement of the east.
China Sends More Out Than Receives In
- For well over two decades now, China has become the world’s factory based on huge capital inflows of foreign direct investment into the country. That investment has seen China rise to become (at least on one measure, refer next graph) the world’s largest economy. All that investment, production and trade has produced enormous surpluses within the country and for the first time in 2015, China will send more foreign direct investment out than it receives in. Australian mining and real estate sectors will continue to be impacted by this investment push.
China overtakes USA (at least on one measure)
- Sorry, America. China just overtook the USA to become the world’s largest economy, according to the International Monetary Fund. The method used by the IMF adjusts for purchasing power parity. The simple logic is that prices aren’t the same in each country: a shirt will cost you less in Shanghai than San Francisco, so it’s not entirely reasonable to compare countries without taking this into account. Though a typical person in China earns a lot less than the typical person in the US, simply converting a Chinese salary into dollars underestimates how much purchasing power that individual, and therefore that country, might have. The Economist’s Big Mac Index is a great example of these disparities. So the IMF measures both GDP in market exchange terms, and in terms of purchasing power. On the purchasing power basis, China is overtaking the US in early 2015 and becoming the world’s biggest economy.
- It’s not all sore news for the US. It will be some time yet until the lines cross over in raw terms, not adjusted for purchasing power. By that measure, China still sits more than $US6.5 trillion lower than the US and isn’t likely to overtake for quite some time. Whichever measure you apply it is clear that an old age is coming to an end and a new one is beginning. As Australia’s number one trading partner we should hope the Chinese rise continues.
Balance of Military Power Also Shifts East
- In 2015 the Asia-Pacific region (excluding China) will match the European Unions spending in 2015.
- Without the title, one could be forgiven for viewing this graph as depicting the recent economic turmoil in the EU and simultaneous economic rise of Asia. It puts emphasis into the old saying that ‘after wealth follows power’.
- Technology is forever in flux and the next four graphs reveal some very interesting shifts in technology trends.
- In 2015 sales of tablets will overtake those of personal computers.
The Age of New Media
- And continuing the above trend, in 2015 internet advertisements in the USA will surpass the combined value of ads from newspapers, magazines and billboards.
- And oddly, mobile phone subscriptions will exceed the world population.
- In 2015 there will be more people active on Facebook than living in China. If the social network was a country, it would be the world’s most populous.
Game of Thrones
- At least one 2015 milestone reflects continuity rather than change. Health and inclination permitting, Queen Elizabeth II will become England’s longest-serving monarch on 11 September 2015 when she passes her great-grandmother Queen Victoria.
- As 2014 disappears almost as rapidly as it came, it is easy to feel overwhelmed by the amount and rate of change around us. 2015 looks set to be no different, and remarkable geo-economic shifts are about to occur which will continue to change the way people think about the world. Film buffs will recall that 2015 was the year to which the heroes travelled in “Back to the Future Part II”. No time travel will happen in the next 12 months, but an extraordinary space voyage will capture the imagination; after travelling for nearly nine years and across 3 billion miles, NASA’s New Horizons spacecraft will reach Pluto in July. For all its upheaval and division, at least this event may provide the world with a unifying chance to join together in wonder and reflect on how truly small and connected our colourful planet is.
- From the entire team at Prime Capital, we would like to thank you for 2014 and wish you and your family a safe, happy and prosperous 2015.
This update does not constitute financial advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek professional advice before acting or relying on any of the content.