From 2012, poor will have larger share of world GDP

The emerging economies have arrived. Well, almost. Come 2012, and the world economy will be split exactly half-way between developing and advanced countries. As developing economies continue to grow twice as fast as advanced economies, they will contribute more to the global economy than advanced countries post-2012.

The share of developing economies in global gross domestic product (GDP) has been rising fast over the past decade in purchasing power parity (PPP) terms, though not in dollar terms. PPP is the exchange rate at which a basket of goods and services in one country can be purchased in another country at the same price. Put another way, a loaf of bread output that is priced at Rs 15 in India and $1 in the US will give India three times the GDP value in PPP terms (assuming $1 = Rs 45).

In PPP terms, emerging economies had a 37% share in world GDP in 2000. This rose to 41% by 2005 and is expected to be at 50% in 2012, according to the International Monetary Fund (IMF).

And this is not all. After converging at the mid-way mark in 2012, developing economies’ share will continue to rise further leading to them to contribute 54% to world GDP by 2016. The advanced economies will be contributing a lower 46%.

Factors like economic expansion and favourable demographics in major developing economies like China and India have lifted growth rates for the group as a whole to over 8% in the 2000s.

PPP as a measurement unit is favourable to developing economies’ GDP estimation because prices of many goods are cheaper than in the developed west. But the recession in advanced economies has been a contributing factor to their relative decline. With recessionary effects still playing out, advanced economies’ GDP growth is expected to remain relatively muted going forward as well.