The global economy's second sun
In our solar system, eight planets (sorry Pluto) revolve around the sun. As Stephen Jen and Joana Freire of Eurizon SLJ Asset Management see it, the US economy once served as that sun. The rest of the world, he says, were planets "revolving around, and being influenced by, the gravitational pull of the US economy."
Now, a new sun has emerged. For Jen and Freire, "China has become not only big enough, but also the links of its economic ecosystem powerful enough" to pull on other "planets."
On Monday, two US giants in their fields—Caterpillar and Nvidia—spoke of this gravitational pull. In their respective earnings reports, executives joined a host of others in blaming lacklustre growth in the most recent quarter on the sharp economic slowdown currently hamstringing China. The same day, ECB president Mario Draghi tethered the Eurozone's economic outlook to that of China's expansive stimulus measures of late. A shoring up of growth in China, he said, could alleviate the pressures weighing on exporters in the region.
According to Jen and Freire, the linkages drawn by these chief executives and policymakers can be quantified. Using a series of network theory algorithms, Jen and Freire found that China's influence on the world is now as sizable as the combined influence of the US and EU. The shift occured following the financial crisis in 2008, which saw the US's impact on average global GDP shrink from just over 40 per cent between 1989-98 to half that between 2009-18:
What is more, the $9tn expansion of China's GDP in dollar terms over the last decade outstripped that of the US and EU, which grew $7tn and $2tn respectively over the same period.......MUCH MORE
