Countries by GDP and Economic Components (1970-2017)
While looking at the top countries by GDP is a useful big picture measure, it can also be informative to look at the components that make up an economy as well.
Examining a country’s economic building blocks can tell us a lot about what stage of development the country is in, and where competitive advantages may exist.
Analyzing GDP by Sector
Today’s “horse race” bar chart, by Number Story, is an entertaining historical look at the ranking of top countries by GDP, including the parts that make up the whole.
Here is the latest data as of 2018, as well as the largest sector according to data from the United Nations’ industry classification database:
|Rank||Country||GDP (2018)||Top Sector (% of total)||2nd Largest Sector (% of total)|
|1||🇺🇸 United States||$20.6T||Other (55%)||Mining/Manufacturing/Utilities (15%)|
|2||🇨🇳 China||$13.6T||Other (36%)||Mining/Manufacturing/Utilities (33%)|
|3||🇯🇵 Japan||$4.9T||Other (43%)||Mining/Manufacturing/Utilities (23%)|
|4||🇩🇪 Germany||$3.6T||Other (48%)||Mining/Manufacturing/Utilities (25%)|
|5||🇬🇧 UK||$2.5T||Other (55%)||Retail/Restaurant/Hotels (14%)|
|6||🇮🇳 India||$2.5T||Other (36%)||Mining/Manufacturing/Utilities (22%)|
|7||🇫🇷 France||$2.5T||Other (56%)||Mining/Manufacturing/Utilities (13%)|
|8||🇮🇹 Italy||$1.9T||Other (49%)||Mining/Manufacturing/Utilities (20%)|
|9||🇧🇷 Brazil||$1.6T||Other (50%)||Mining/Manufacturing/Utilities (16%)|
|10||🇨🇦 Canada||$1.6T||Other (52%)||Mining/Manufacturing/Utilities (18%)|
|11||🇰🇷 South Korea||$1.6T||Other (42%)||Mining/Manufacturing/Utilities (31%)|
|12||🇷🇺 Russia||$1.5T||Other (36%)||Mining/Manufacturing/Utilities (28%)|
|13||🇦🇺 Australia||$1.4T||Other (53%)||Mining/Manufacturing/Utilities (17%)|
|14||🇪🇸 Spain||$1.3T||Other (47%)||Retail/Restaurant/Hotels (19%)|
|15||🇲🇽 Mexico||$1.2T||Other (34%)||Mining/Manufacturing/Utilities (24%)|
Why are “Other Activities” so dominant in this breakdown?
It’s because of the way GDP that components are classified as data in the UN industry classification system, which is laid out below:
- Agriculture, hunting, forestry, fishing (ISIC A-B)
- Mining, manufacturing, utilities (ISIC C-E)
- Construction (ISIC F)
- Wholesale, retail trade, restaurants and hotels (ISIC G-H)
- Transport, storage and communication (ISIC I)
- Other activities, such as finance, healthcare, real estate, and tech (ISIC J-P)
Although agriculture, construction, or manufacturing have been a bedrock for economies in the past, developed countries skew towards adding economic value in different ways today.
Given that finance, government spending (healthcare, education, defense, etc.) and technology — all important modern industries — are included in “Other”, this makes the possibly outdated classification the biggest (and least useful) category to examine here.
Nevertheless, there is still information we can glean from this animated breakdown of GDP, spanning a period of almost 50 years.
A More Granular Look at GDP
However, the animated bar chart shows something more granular that is compelling in its own right. By observing the evolution of countries’ economic components over time, some interesting observations emerge that would normally be lost in the big picture.
Japan’s Manufacturing Boom
At points during Japan’s heyday of growth during the 1980’s, manufacturing comprised nearly 30% of economic activity. By the mid-90s, this single segment of Japan’s economy was so valuable that, on its own, it would’ve placed fifth in the global ranking.
America Leading the Pack
While other countries switch positions, reordering as economies boom and bust, the U.S. has handily remained in top position.
Japan was the country that narrowed the gap between the first and second spot the most, though the country’s Lost Decade in the 1990s cut that ascension short.
During the years between 1970 and 2017, the United States was at its most dominant in 2006 when its GDP was triple the size of Japan’s. Of course, in recent years China has narrowed the gap considerably.
A Star Rising in the East
As one would expect, the building blocks of China’s economy looked very different in the 1970s than today.
The communist systems of the USSR and China are both easy to spot in the visualization. Agriculture played an outsized role, and industries like finance, real estate, and retail were understated compared to the profiles of countries that operated under a capitalist system.
In 1980, as the first Special Economic Zones were being created, three-quarters of China’s economy was based on agriculture, resource extraction, and manufacturing. Even as recently as the early ’90s, China wasn’t in the top 10 despite being the world’s most populous country.
Of course, that situation changed drastically over the next two decades. By the dawn of the 21st century, China ranked fifth in the world, and a decade later, China surpassed Japan to become the second largest economy globally.
Recession Risk: Which Sectors are Least Vulnerable?
We show the sectors with the lowest exposure to recession risk—and the factors that drive their performance.
Recession Risk: Which Sectors are Least Vulnerable?
In the context of a potential recession, some sectors may be in better shape than others.
They share several fundamental qualities, including:
- Less cyclical exposure
- Lower rate sensitivity
- Higher cash levels
- Lower capital expenditures
With this in mind, the above chart looks at the sectors most resilient to recession risk and rising costs, using data from Allianz Trade.
Recession Risk, by Sector
As slower growth and rising rates put pressure on corporate margins and the cost of capital, we can see in the table below that this has impacted some sectors more than others in the last year:
|Sector||Margin (p.p. change)
|🏡 Household Equipment||-0.9|
|🚗 Automotive Manufacturers||-1.1|
|🏭 Machinery & Equipment||-1.1|
|🖥️ Computers & Telecom||-2.0|
*Percentage point changes 2021- 2022.
Generally speaking, the retail sector has been shielded from recession risk and higher prices. In 2023, accelerated consumer spending and a strong labor market has supported retail sales, which have trended higher since 2021. Consumer spending makes up roughly two-thirds of the U.S. economy.
Sectors including chemicals and pharmaceuticals have traditionally been more resistant to market turbulence, but have fared worse than others more recently.
In theory, sectors including construction, metals, and automotives are often rate-sensitive and have high capital expenditures. Yet, what we have seen in the last year is that many of these sectors have been able to withstand margin pressures fairly well in spite of tightening credit conditions as seen in the table above.
What to Watch: Corporate Margins in Perspective
One salient feature of the current market environment is that corporate profit margins have approached historic highs.
As the above chart shows, after-tax profit margins for non-financial corporations hovered over 14% in 2022, the highest post-WWII. In fact, this trend has been increasing over the past two decades.
According to a recent paper, firms have used their market power to increase prices. As a result, this offset margin pressures, even as sales volume declined.
Overall, we can see that corporate profit margins are higher than pre-pandemic levels. Sectors focused on essential goods to the consumer were able to make price hikes as consumers purchased familiar brands and products.
Adding to stronger margins were demand shocks that stemmed from supply chain disruptions. The auto sector, for example, saw companies raise prices without the fear of diminishing market share. All of these factors have likely built up a buffer to help reduce future recession risk.
Sector Fundamentals Looking Ahead
How are corporate metrics looking in 2023?
In the first quarter of 2023, S&P 500 earnings fell almost 4%. It was the second consecutive quarter of declining earnings for the index. Despite slower growth, the S&P 500 is up roughly 15% from lows seen in October.
Yet according to an April survey from the Bank of America, global fund managers are overwhelmingly bearish, highlighting contradictions in the market.
For health care and utilities sectors, the vast majority of companies in the index are beating revenue estimates in 2023. Over the last 30 years, these defensive sectors have also tended to outperform other sectors during a downturn, along with consumer staples. Investors seek them out due to their strong balance sheets and profitability during market stress.
|S&P 500 Sector||Percent of Companies With Revenues Above Estimates (Q1 2023)|
|Real Estate ||81%|
Cyclical sectors, such as financials and industrials tend to perform worse. We can see this today with turmoil in the banking system, as bank stocks remain sensitive to interest rate hikes. Making matters worse, the spillover from rising rates may still take time to materialize.
Defensive sectors like health care, staples, and utilities could be less vulnerable to recession risk. Lower correlation to economic cycles, lower rate-sensitivity, higher cash buffers, and lower capital expenditures are all key factors that support their resilience.
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