There’s some good news and there’s some bad news….

The good news is the rate of global gross domestic product (GDP) growth increased during the second quarter, according to The Economist. Greater economic strength in developed countries helped push the world’s GDP 2.4 percent higher during the second quarter of 2013 as compared to the second quarter of 2012. That’s only the third time that has happened in three years. The bad news, according to The Economist, is: 

“The world is dangerously dependent on China… Since the beginning of 2010 it alone has contributed over one-third of global GDP growth, with another 40% coming from the rest of the emerging world. Weighed down by debt since the financial crisis, the rich world’s growth has been sclerotic (rigid and unresponsive for those who didn’t know this word, like myself). Excluding America, it has provided just 10% of global growth since 2010; America has contributed another 12.5%.” 

China’s GDP has been growing at a pretty fair pace although the rate of growth has slowed. Forbes reported China’s GDP grew at an annualised rate of 7.5 percent during the second quarter of 2013, falling just short of first quarter’s 7.7 percent growth. The slowdown was expected. China is rejiggering its economy in an effort to stimulate domestic demand and consumer spending rather than continuing to rely on investment-driven growth. 

Here’s another tidbit to consider. Forty percent of the world’s growth has been attributable to emerging markets (ex-China). Changing expectations for U.S. monetary policy have interrupted the flow of capital into those markets. The Economist’s Capital Freeze Index, which assesses the vulnerability of emerging markets to a freeze in capital inflows, found that nine of 26 emerging countries examined are at relatively high risk of this happening. That has the potential to affect the world’s GDP growth rate, too.

 
 
 

Lexington Wealth Management