China’s GDP will surge from $11.2 trillion to $19 trillion in 2016, accounting for 18 per cent of world output. The US will grow, but not enough: its output is predicted to jump from $15.2 trillion to $18.8 trillion, just 17.7 per cent of global GDP. It’s heady stuff, with huge implications for global prosperity, investors, corporate strategies, individual careers, geopolitics and the future of liberal democracy. No wonder gold futures hit another record yesterday – and that the greenback is under such pressure.
Two caveats are in order. The first is that the stats are adjusted for purchasing power parity: a dollar goes much further in China than it does in the US and Chinese GDP figures are adjusted to reflect this. At existing exchange rates, it would take longer for China to overtake the US – but economists prefer to use the adjusted numbers as they reflect relative wealth better.
The second caveat is that the IMF, like all forecasters seeking to predict the unpredictable, regularly gets it wrong. China is suffering from excessive inflation; its housing market remains a bubble and its GDP statistics (and all official figures) are suspicious. It remains unclear whether the present monetary tightening will be enough to avoid a massive, sub-prime style financial and credit crisis, which could yet destroy the Chinese regime. We shall soon find out.
THINK MACRO, ACT MICRO
It is not all bad news, though. Since 11 April, 71 per cent of MCSI World Index firms reporting profits have beaten analysts’ estimates for earnings per share, according to Bloomberg. The 188 giants (from all over the world) have on average smashed expectations by 8.8 per cent, thanks primarily to yet another quarter of strong productivity and efficiency growth. Demand has also been rising, of course, led by emerging economies as well as Germany, Europe’s new powerhouse. The real surprise has been that the explosion in commodity costs – led by oil – has done so little, on average, to dent the earnings bonanza.
The poster-child of the uber-performers was Apple, which boasted quarterly profits up 95 per cent with iPhone sales more than doubling; Google, by contrast, performed less well, partly because it has been spending far more on staff. Wall Street worried a little yesterday after some firms trimmed their outlooks – but the overall picture is remarkably resilient. Once again, the world’s largest companies stand apart from the rest of the economy in terms of their ability to grow, boost efficiency, innovate and make money. There are worries that the US economy may have expanded by just 2 per cent or less annualised during the first quarter (0.5 per cent on a quarterly basis), while on Wednesday we will find out how Britain has done (there is a huge range of predictions, with economists even more confused than usual). There are no such fears when it comes to multinationals as a class. For investors, the lesson is clear: in an upswing, big firms do better than countries. Think macro – but act micro.
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