Of reversing the Great Divergence and passing the baton (2013)

Economies’ relative weight has been changing rather dramatically over the past few decades – most notably in the case of China. At the beginning of economic reforms in the late seventies, following almost half a century of economic and political instability, China’s share of global GDP was a mere 2.2%, according to the IMF. By 2020, its share is set to exceed 20%. Economic historians estimate that China acounted for 1/3 of global economic output in 1820, just before what has come to be known as the “great divergence” (Pomeranz 2000). In 2017, China will replace the US as the world’s largest economy (in PPP terms). This will be the first time since 1872 – when the US overtook Britain as the world’s largest economy – that a new “number one” will emerge. Between 1870 and 1910, the US nearly doubled its share of world output from less than 9% to almost 16%. Following the devastation of most major economies, the US emerged from WWII accounting for 27% of world GDP. With the recovery of war-devastated economies, the US share began to decline. On current trends, the US share will continue to decline and the Chinese share will continue to increase, but India will be just about the only country with the potential to replace the US as the world’s second-largest economy. But this is unlikely to happen before 2050. Beyond India, there are simply no other potential contenders.

Source: IMF