Saturday, September 29, 2007

Which Country Will Be The Largest Economy In The World?

Currently, the United States is the top economic power in the world, followed by Japan, Germany, China and France, respectively.

Will another nation eventually overtake the U.S. in this role? It has been speculated by some that China is destined to take the top spot in terms of economic GDP if it can continue its bustling double digit economic growth. This is possible, but there are several factors to consider.

A double digit growth rate generally only happens to a younger, growing economy. When a national economy matures, it generally settles into a 2-3% annual GDP growth rate. That is about what we see in the U.S. and many western European nations, for example. In recent years Ireland grew at a double digit growth rate but has since settled to a more modest growth rate.

The same may happen with China. Obviously, if it can continue such a high growth rate it will eventually overtake the U.S in this regard, but it will have to maintain this rate for some time. Since the U.S. economy is larger to begin with, China and other rival economies must sustain a considerable larger GDP growth margin in order to catch up.

But there are other factors involved as well. One is current trend of trade blocks, such as that of NAFTA. If you were to include Canada (a member of the Group of Eight leading Industrialized economies) with a huge economy in it's own right), Mexico (nearly ninety million consumers and very rich in natural resources such as Oil, Gold and Silver), and the various Central American nations which are seeking membership, this bloc would me much more difficult to catch up to in terms of market size and total GDP. In addition, there is a push in some circles for the FTAA (Free Trade Area of the Americas) which may one day include all nations in North and South America.

For that matter, the combined European Union is already a much larger economy than that of the U.S. The EU has some 450 million highly educated consumers compared to about 300 million in the United States, and it is adding new countries at swift pace. In any case, it should be noted that a number of top economists predicted back in the 1970's that both Japan and the Soviet Union would overtake the U.S. economy.

This of course did not happen, due to bank mismanagement in the former case and political dismantling in the latter. As i write this article, Yahoo news reported that 'China's stock market plummeted from record highs as investors took profits when concerns arose that the Chinese government may try to temper its ballooning economy by raising interest rates again or reducing more of the money available for lending.

The Shanghai Composite Index tumbled 8.8 percent to close at 2,771.79, its biggest decline since it fell 8.9 percent on Feb. 18, 1997. Since Chinese share prices doubled last year as investors poured money into the market after the completion of shareholding reforms, trading in Shanghai has been very volatile.' It is certainly possible that China could eventually be the top economy, but wise economic policies will probably be a biggest long term factor of whether or not this occurs.

Ryan Joseph is a writer/researcher. More news at