World economy

Understanding the World Economy: A Global Overview

The world economy or global economy is the total economic activity conducted by humans worldwide, including production, consumption, and financial transactions. It encompasses both domestic and international economic activities. The term ‘world economy’ can refer to either the entire global system or aggregate measurements from individual countries. Have you ever wondered how all these economies interconnect and influence each other?

Defining the World Economy

The definitions of the world economy vary widely, with some limiting it solely to human economic activity. In cases where a clear market exists, monetary values are typically used to estimate worldwide economic activity. However, exchange rates often do not accurately reflect worldwide value, and alternative methods such as purchasing power parity (PPP) are used instead.

Historical Shifts in Global Output

Historically, global output was dominated by China and India until the Industrial Revolution shifted it to Western Europe and Northern America. Today, 20 countries or collectives have reached an economy of at least US$2 trillion in nominal or PPP terms. Have you ever thought about how these shifts impact our daily lives?

Impact of the Pandemic

The world economy decreased by 3.4% in 2020 due to the COVID-19 pandemic but rebounded with a 5.5% increase in 2021. The FTSE Global Equity Index Series provides coverage of stocks in 48 countries, covering 98% of the world’s investable market capitalization. This highlights how global events can significantly affect economic performance.

Global GDP and Per Capita Income

The Gross World Product (GWP) shows that imports and exports are equal. Because imports and exports balance exactly when considering the whole world, this also equals the total global gross domestic product (GDP). According to the World Bank, the 2013 nominal GWP was approximately US$75.59 trillion. In 2017, the GWP was around US$80.27 trillion in nominal terms and totaled approximately 127.8 trillion international dollars in PPP terms.

Developed vs. Developing Countries

Developed economies are characterized by a developed economy and advanced technological infrastructure relative to other nations. The GDP of developed countries was predicted to fall from 2.2% in 2017 to 2.0% in 2018 due to the fall in dollar value. In contrast, developing countries have a less developed industrial base and a low Human Development Index (HDI) relative to other countries. The GDP of developing countries was expected to rise from 4.3% in 2017 to 4.6% in 2018 due to political stability and advancement in technology.

Least Developed Countries

The concept of least developed countries (LDCs) originated in the late 1960s, with the first group listed by the UN in its resolution 2768 (XXVI) on November 18, 1971. These countries are generally characterized by a low standard of living and limited economic development. The predicted growth for these countries includes advancements in technology and industrialization.

Economic Composition

GDP composition by sector includes agriculture (4%), industry (32%), and services (64%). Inflation rates vary widely, but the common measure of inflation is the inflation rate. The global average inflation rate was 2.6% in 2017 and predicted to be 8.3% in 2018.

Financial Metrics

Derivatives outstanding notional amounts are $601 trillion (OTC) and $82 trillion (exchange traded), while global debt issuance is $5.187 trillion and global equity issuance is $505 billion. Yearly electricity consumption: 14,280,000 GWh (2003 est.), 13,930,000 GWh (2001 est.). Oil production: 79,650,000 bbl/d (2003 est.), 75,460,000 barrels per day (2001). Oil consumption: 80,100,000 bbl/d (2003 est.), 76,210,000 barrels per day (2001).

Trade and Aid

Yearly exports: $12.4 trillion, €11.05 trillion (2009 est.). Exports – commodities: industrial and agricultural goods and services. Exports – partners: US 12.7%, Germany 7.1%, China 6.2%, France 4.4%, Japan 4.2%, UK 4.1% (2008). Yearly imports: $12.29 trillion, €10.95 trillion (2009 est.). Imports – commodities: industrial and agricultural goods and services. Imports – partners: China 10.3%, Germany 8.6%, US 8.1%, Japan 5% (2008). Debt – external: $56.9 trillion, €40 trillion (31 December 2009 est.). Annual international aid: Official Development Assistance (ODA) of $204 billion (2022).

Telecommunications and Infrastructure

Telephones – main lines in use: 843,923,500 (2007), 4,263,367,600 (2008). Telephones – mobile cellular: 3,300,000,000 (Nov. 2007). Internet Service Providers (ISPs): 10,350 (2000 est.). Internet users: 3,079,339,857 (31 December 2014), 360,985,492 (31 December 2000). Transportation infrastructure worldwide includes airports: Total: 41,821 (2013). Roadways: Total: 32,345,165 km. Paved: 19,403,061 km. Unpaved: 12,942,104 km. Railways: Total: 1,122,650 km.

Military Expenditures

Annual military expenditures – percent of GDP: roughly 2% of gross world product (1999).

Innovation and Research

The share of English-language scientific research papers is dominated by the United States, followed by China, the UK, Germany, Japan, France, and Canada in terms of number of papers. In 2015, research and development constituted an average 2.2% of global GDP.

Metrics and Rankings

Metrics and rankings of innovation include the Bloomberg Innovation Index, the Global Innovation Index, and the share of Nobel laureates per capita.

Resources and Environment

The world economy faces significant environmental challenges. Estimated annual deforestation: 10 billion trees. Annual net forest area loss (2000–2010): 4.7 million hectares. Soils: Soil erosion by water in 2012: almost 36 billion tons. Estimated annual loss of agricultural productivity due to soil erosion: $8 billion US dollars.

Waste and Pollution

Pesticide use in Australia in 2016: approximately 62,500 tonnes. Oceans (ecosystem services): Blue economy. Waste and pollution: Plastic production worldwide each year: 380 million tonnes. Estimated 6.3 billion tonnes of plastic produced worldwide since the 1950s, with an estimated 9% recycled and 12% incinerated.

Air Pollution

Number of human deaths caused annually by air pollution worldwide: approximately 7 million. Estimated global annual cost of air pollution: $5 trillion.

Microplastic Pollution

Microplastic pollution is a growing concern. Estimated accumulated number of microplastic particles in the North Atlantic Ocean in 2014: 15 to 51 trillion particles, weighing between 93,000 and 236,000 metric tons. Estimated accumulated number of microplastics per cubic meter in 2020: 3700.

Historical Development

The MSCI All Country World Index provides a breakdown of market sector as follows. OECD Better Life Index rankings for different aggregative domains include 11 comparable ‘dimensions’ such as housing, income, jobs, community, education, environment, governance, health, life satisfaction, safety, and work-life balance.

Economic Studies

Government agencies publish economic studies by sector and country worldwide. These studies provide valuable insights into the current state of global economies and help policymakers make informed decisions.

Understanding the world economy is crucial for grasping how interconnected our global community truly is. From economic shifts and trade patterns to environmental challenges, every aspect of this vast system impacts us in ways we often don’t realize. By staying informed and engaged, we can contribute to a more sustainable and equitable future.