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.
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Interest Rate Hikes vs. Inflation Rate, by Country
Inflation rates are reaching multi-decade highs in some countries. How aggressive have central banks been with interest rate hikes?
Interest Rate Hikes vs. Inflation Rate, by Country
Imagine today’s high inflation like a car speeding down a hill. In order to slow it down, you need to hit the brakes. In this case, the “brakes” are interest rate hikes intended to slow spending. However, some central banks are hitting the brakes faster than others.
This graphic uses data from central banks and government websites to show how policy interest rates and inflation rates have changed since the start of the year. It was inspired by a chart created by Macrobond.
How Do Interest Rate Hikes Combat Inflation?
To understand how interest rates influence inflation, we need to understand how inflation works. Inflation is the result of too much money chasing too few goods. Over the last several months, this has occurred amid a surge in demand and supply chain disruptions worsened by Russia’s invasion of Ukraine.
In an effort to combat inflation, central banks will raise their policy rate. This is the rate they charge commercial banks for loans or pay commercial banks for deposits. Commercial banks pass on a portion of these higher rates to their customers, which reduces the purchasing power of businesses and consumers. For example, it becomes more expensive to borrow money for a house or car.
Ultimately, interest rate hikes act to slow spending and encourage saving. This motivates companies to increase prices at a slower rate, or lower prices, to stimulate demand.
Rising Interest Rates and Inflation
With inflation rates hitting multi-decade highs in some countries, many central banks have announced interest rate hikes. Below, we show how the inflation rate and policy interest rate have changed for select countries and regions since January 2022. The jurisdictions are ordered from highest to lowest current inflation rate.
|Jurisdiction||Jan 2022 Inflation||May 2022 Inflation||Jan 2022 Policy Rate||Jun 2022 Policy Rate|
The Euro area has 3 policy rates; the data above represents the main refinancing operations rate. Inflation data is as of May 2022 except for New Zealand and Australia, where the latest quarterly data is as of March 2022.
The U.S. Federal Reserve has been the most aggressive with its interest rate hikes. It has raised its policy rate by 1.5% since January, with half of that increase occurring at the June 2022 meeting. Jerome Powell, the Federal Reserve chair, said the committee would like to “do a little more front-end loading” to bring policy rates to normal levels. The action comes as the U.S. faces its highest inflation rate in 40 years.
On the other hand, the European Union is experiencing inflation of 8.1% but has not yet raised its policy rate. The European Central Bank has, however, provided clear forward guidance. It intends to raise rates by 0.25% in July, by a possibly larger increment in September, and with gradual but sustained increases thereafter. Clear forward guidance is intended to help people make spending and investment decisions, and avoid surprises that could disrupt markets.
Pacing Interest Rate Hikes
Raising interest rates is a fine balancing act. If central banks raise rates too quickly, it’s like slamming the brakes on that car speeding downhill: the economy could come to a standstill. This occurred in the U.S. in the 1980’s when the Federal Reserve, led by Chair Paul Volcker, raised the policy rate to 20%. The economy went into a recession, though the aggressive monetary policy did eventually tame double digit inflation.
However, if rates are raised too slowly, inflation could gather enough momentum that it becomes difficult to stop. The longer high price increases linger, the more future inflation expectations build. This can result in people buying more in anticipation of prices rising further, perpetuating high demand.
“There’s always a risk of going too far or not going far enough, and it’s going to be a very difficult judgment to make.” — Jerome Powell, U.S. Federal Reserve Chair
It’s worth noting that while central banks can influence demand through policy rates, this is only one side of the equation. Inflation is also being caused by supply chain issues, a problem that is more or less outside of the control of central banks.
3 Insights From the FED’s Latest Economic Snapshot
Stay up to date on the U.S. economy with this infographic summarizing the most recent Federal Reserve data released.
3 Insights From the Latest U.S. Economic Data
Each month, the Federal Reserve Bank of New York publishes monthly economic snapshots.
To make this report accessible to a wider audience, we’ve identified the three most important takeaways from the report and compiled them into one infographic.
1. Growth figures in Q2 will make or break a recession
Generally speaking, a recession begins when an economy exhibits two consecutive quarters of negative GDP growth. Because U.S. GDP shrank by -1.5% in Q1 2022 (January to March), a lot rests on the Q2 figure (April to June) which should be released on July 28th.
Referencing strong business activity and continued growth in consumer spending, economists predict that U.S. GDP will grow by +2.1% in Q2. This would mark a decisive reversal from Q1, and put an end to recessionary fears for the time being.
Unfortunately, inflation is the top financial concern for Americans, and this is dampening consumer confidence. Shown below, the consumer confidence index reflects the public’s short-term outlook for income, business, and labor conditions.
Falling consumer confidence suggests that more people will delay big purchases such as cars, major appliances, and vacations.
2. The COVID-era housing boom could be over
Housing markets have been riding high since the beginning of the COVID-19 pandemic, but this run is likely coming to an end. Here’s a summary of what’s happened since 2020:
- Lockdowns in early 2020 created lots of pent-up demand for homes
- Greater household savings and record-low mortgage rates pushed demand even further
- Supply chain disruptions greatly increased the cost of materials like lumber
- Construction of new homes couldn’t keep up, and housing supply fell to historic lows
Today, home prices are at record highs and the cost of borrowing is rapidly rising. For evidence, look no further than the 30-year fixed mortgage rate, which has doubled to more than 6% since the beginning of 2022.
Given these developments, the drop in the number of home sales could be a sign that many Americans are being priced out of the market.
3. Don’t expect groceries to become any cheaper
Inflation has been a hot topic this year, especially with gas prices reaching $5 a gallon. But there’s one category of goods that’s perhaps even more alarming: food.
The following table includes food inflation over the past three years, as the percent change over the past 12 months.
|Date||CPI Food Component (%)|
From this data, we can see that food inflation really picked up speed in April 2020, jumping to +3.5% from +1.9% in the previous month. This was due to supply chain disruptions and a sudden rebound in global demand.
Fast forward to today, and food inflation is running rampant at 10.1%. A contributing factor is the impending fertilizer shortage, which stems from the Ukraine war. As it turns out, Russia is not only a massive exporter of oil, but wheat and fertilizer as well.
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