China has replaced the US as the engine of the global economy, providing by far the largest contribution to growth in recent years and pulling along the world’s smaller economies in its train.
It accounted for 28 percent of all growth worldwide in the five years from 2013 to last year, more than twice the share of the US, according to the IMF.
The fund predicts in this year’s World Economic Outlook China will account for a similar share of growth over the next five years between this year and 2024.
China, India, Indonesia, Russia and Brazil collectively are to account for more than half of all global growth through 2024, based on fund projections.
There is no scenario in which the global economy can achieve healthy growth unless these five economies, especially China, see their output and incomes rise strongly.
Resolving the economic conflict between the US and China, or at least managing it better, will be critical if global growth is to accelerate again over the next few years.
Between the 1970s and the 1990s, it was common to characterize the US as the locomotive of the world economy (“On the locomotive theory in international macroeconomics,” Martin Bronfenbrenner, 1979).
US fiscal and monetary policy usually played the decisive role in the development of the global economic cycle through trade and financial links to smaller economies.
The dominant role of the US in the system was summed up in various versions of the phrase “when the US sneezes, the world catches a cold.”
The US is still important, and the Federal Reserve remains at the center of global markets, but the US economy is no longer large enough or growing fast enough to act as the sole locomotive for the world economic train.
China on its own, and the other major emerging markets collectively, are now more important drivers of the global economy.
The traditional aphorism should probably be recast as “when China sneezes” or “when emerging markets sneeze,” the world catches a cold.
China and the other major emerging markets are themselves increasingly interdependent since China is both a major importer of raw materials, and supplier of manufactured products and outward investment.
China’s cyclical slowdowns in 2014 and last year were major contributory factors in the worldwide economic slowdowns in those years and China would remain central to the global cycle over the next five years.
China’s cyclical position is especially important because its rapidly growing middle class is at the stage of economic development where demand for oil, motor vehicles, air travel, tourism and other industries is booming.
The economy is in the middle section of the “S” curve where rising incomes drive fast growth in consumption of private motor vehicles and long-distance air transportation.
China’s cycle played a major part in the slump in oil prices in 2014 and again last year by dampening oil consumption growth in those years.
Now, it, together with India, is playing a similar role in the global motor manufacturing slump, which has hurt automakers and is hitting the industry’s entire global value chain.
In turn, lower oil prices have impacted revenues, government spending and business investment across much of the Middle East and other regions dependent on oil exports.
Oil’s cyclical slump is even hitting revenues, investment and employment in oil-producing regions of the US such as west Texas.