OECD share in world GDP stable at around 50% in PPP terms in 2017

PARIS - The OECD share in world GDP expressed in Purchasing Power Parities (PPPs) stabilised around 50% between 2011 and 2017 (latest benchmark year), according to new data released today by the International Comparison Program (ICP). Similarly, the share of large emerging economies (China, Brazil, India, Indonesia, the Russian Federation and South Africa) also stabilised at around 30% of world GDP.

The United States and China were the world’s largest economies in 2017, each accounting for around 16% of global GDP. The third largest economy was India, with 6.7% of world GDP.

PPPs are the relevant currency conversion rates to make international comparisons of economic activity. Unlike exchange rates, they correct for differences in price levels across countries. As price levels are higher in high-income countries and lower in low-income countries, a comparison based on exchange rates overstates the size of high-income countries and understates the size of low-income countries. For instance, the OECD area accounts for two thirds of world GDP with currency conversions based on exchange rates. Similarly, the share of the United States in world GDP (24.5%) is much higher than the share of China (15.2%) if exchange rates are used.

The 2017 PPPs released today include new information for non-OECD countries as compared to the 2017 PPPs available so far in OECD.Stat and the World Development Indicators, which were necessarily based on extrapolations1 of GDP deflators from the last PPP benchmark year.

Of particular note is that the 2017 benchmark PPP for China is 18% higher than the extrapolated PPP, implying a similar downward change in estimates of China’s GDP on a PPP basis. Estimates based on extrapolation suggested that China had overtaken the United States on a PPP basis in 2014 but the new benchmark estimates reveal a different picture, with both economies of equal size in 2017. This is a reminder that care is needed in comparing extrapolated estimates. In part to address the impact of extrapolated measures, the next ICP round, which is currently in preparation, will be conducted with 2021 as the reference year.

Specific PPPs can also be applied to measures of Actual Individual Consumption2 (AIC) per capita to provide insights on comparisons of material well-being of households across countries.

In the OECD area, the average3 per-capita volume of AIC was 2.75 higher than the world average in 2017. The United States had the highest AIC per capita in large economies, at over four times the world average, and close to eleven times the average in India and seven times the average in China.

The International Comparison Program (ICP) underlying the above results is the largest worldwide statistical partnership. It involves 176 countries as well as regional agencies collecting internationally comparable prices. For all these countries, the ICP provides volume measures of Gross Domestic Product and its components, for example AIC, based on PPPs. The OECD is a partner in the ICP. Together with Eurostat, the OECD calculated 2017 benchmark PPPs for GDP and final consumption for 49 countries. These benchmark PPPs were included in the worldwide ICP comparison.

For the full report with graphics, visit: http://www.oecd.org/sdd/prices-ppp/oecd-share-in-world-gdp-stable-at-around-50-per-cent-in-ppp-terms-in-2017.htm?utm_source=Adestra&utm_medium=email&utm_content=ICP%202017%20-%20Read%20more&utm_campaign=Stats%20Flash%2C%20June%202020&utm_term=sdd

How will COVID-19 impact the world’s poorest people?

Turning back the Poverty Clock: How will COVID-19 impact the world’s poorest people?

By Homi Kharas and Kristofer Hamel, Brookings, May 6, 2020

The release of the IMF’s World Economic Outlook provides an initial country-by-country assessment of what might happen to the world economy in 2020 and 2021.

Using the methods described in the World Poverty Clock, we ask what will happen to the number of poor people in the world—those living in households with less than $1.90 per person per day in actual or imputed spending—given this new economic forecast.

We take the difference between the IMF’s April 2020 forecasts for GDP growth and their forecast from October 2019 as “the COVID effect,” a slight simplification because other things have also changed in the world that may have caused the IMF to alter its forecasts. However, the largest change is clearly caused by COVID-19 and the policy response around the world.

The summary result is that some 690 million people are likely to be in poor households in 2020, compared to our previous estimates of 640 million people. (A careful reader might note that the World Poverty Clock had been estimating about 600 million in poverty in 2020, but newly updated population estimates, new household expenditure data, and new household survey data have also been incorporated into the model. We don’t count those changes as part of the COVID effect, however.)

Our post-COVID-19 estimate is that extreme poverty in the world will rise this year by about 50 million people compared to the original 2020 forecast, and by 40 million people compared to our 2019 estimate. This is right in the middle of the range estimated by a
team of World Bank economists—40 million to 60 million more poor people. This is not surprising as we are using very similar methodologies and data. The number is, however, far smaller than the estimates put forward in one scenario by
Sumner and co-authors, who suggested that poverty could rise by 420 million to 580 million people, a figure that has been picked up by the media and
advocacy organizations as “half a billion.”

All these estimates have a high degree of uncertainty and yet COVID-19 has attacked relatively advanced economies where the absolute numbers of extreme poor are small. If we were looking at the impact of COVID-19 on poverty as defined by national poverty lines, the number would be far higher. We also have little real-time information on how lockdowns will affect income distribution, or about how effective government efforts to strengthen safety net programs are likely to be. COVID-19 may be less disruptive to subsistence farmers, who are heavily represented among the extreme poor than to urban workers who may be vulnerable to income losses but whose initial living conditions were better.

Bearing this in mind, if we accept the IMF scenario for 2020, it suggests that all the progress in reducing poverty since the launch of the Sustainable Development Goals (SDGs) in September 2015 has been lost. We will enter the U.N. Decade of Action with the same distance to travel on poverty reduction, but only ten years in which to do it.

To put this into context, 2020 will be the first time this century that the number of poor people will rise, a fact which can be seen in real time as the World Poverty Clock ticks “backward.” This comes after a spell of poverty reduction averaging almost 100 million people per year between 2008 and 2013. And even though the escape rate out of poverty had fallen recently, with poverty becoming more concentrated in fragile states where progress has been harder to achieve, there was still movement in the right direction.

COVID-19 has seriously affected these trends in ways that are still not clear-cut. The figures below try to identify the most seriously affected countries. Figure 1 shows 12 countries that are likely to see an increase in poverty of over 1 million people in 2020 as a result of COVID-19. They are in Asia and Africa, with Brazil as the sole exception. India and Nigeria stand out as likely to add 10 million and 8 million to the poverty rolls in 2020. In all these countries, COVID-19 has demonstrated the vulnerability of people who have only recently been able to escape poverty.

An alternative way of looking at the impact of COVID-19 is to ask which countries are likely to have the largest increase in poverty rates after COVID-19. Countries with an increase in extreme poverty rates (defined as people living in poverty divided by the total population) greater than 3 percentage points are shown in Figure 2. There are several small island states in this group, including Timor Leste, Sao Tome and Principe, and the Solomon Islands. In fact, there are now 60 countries that are off-track to meet the SDG target of eradicating poverty, even using the less-demanding World Bank threshold of counting countries as off-track if they do not bring extreme poverty down to below 3 percent of their population.

So what can be done? While advanced economies are trying to balance the impact on public health and the impact on the economy by adjusting policy responses like the degree of social distancing, developing countries are faced with much harder policy choices. Most are commodity dependent (in two-thirds of developing countries, commodities account for over 60 percent of exports), and have seen
prices fall by 21 percent so far this year. Many rely on remittances,
projected to decline by double digits, and/or tourism, which has almost collapsed. They face substantial
non-resident portfolio outflows, estimated at almost $100 billion in March and April alone. Over 90 countries have already applied to access the IMF’s emergency credit facilities, and the G-20 have agreed to a moratorium on debt service payments owed by the poorest countries.

The health responses, in terms of lockdowns and social distancing, are also less compelling in most developing countries, sometimes as a matter of choice and sometimes as a matter of practicality. Although the number of cases in developing countries is still small, double digit (or close to) increases in active cases are now being recorded in India, Brazil, Mexico, Ecuador, and South Africa. Social distancing is hard to apply or enforce in the slums of many developing country cities, and the safety net is not sufficiently well developed to allow people to stay at home without working and still feed their families.

With limited fiscal space, developing countries are planning on some fiscal stimulus to expand national health services and protect households, and on fiscal or credit help to keep small businesses afloat and help pay workers’ salaries, but they are heavily constrained. Many have high debt and are being downgraded (Fitch has downgraded 33 countries since the crisis), and if they fund spending by issuing national currency, they will suffer currency depreciations and inflation. The multilateral development banks are helping to a degree, but front-loading and accelerated disbursements cannot match the scale of what is needed. Developing country economies will contract, but not as much as in advanced economies partly because they cannot enforce total lockdowns to the same degree.

For now, the worst fears of the pandemic raging through developing countries have not been realized. If the IMF growth forecasts are roughly correct, both in the size of the global downturn and the distribution across countries, then the impact will be to raise global poverty to a level last seen in 2015. The challenge then will be to accelerate inclusive growth in the recovery phase.

Global military spending sees largest annual increase in a decade— SIPRI

Stockholm - Total global military expenditure rose to $1917 billion in 2019, according to new data from the Stockholm International Peace Research Institute (SIPRI). The total for 2019 represents an increase of 3.6 per cent from 2018 and the largest annual growth in spending since 2010. The five largest spenders in 2019, which accounted for 62 per cent of expenditure, were the United States, China, India, Russia and Saudi Arabia. This is the first time that two Asian states have featured among the top three military spenders.

Global military spending in 2019 represented 2.2 per cent of the global gross domestic product (GDP), which equates to approximately $249 per person. ‘Global military expenditure was 7.2 per cent higher in 2019 than it was in 2010, showing a trend that military spending growth has accelerated in recent years,’ says Dr Nan Tian, SIPRI Researcher. ‘This is the highest level of spending since the 2008 global financial crisis and probably represents a peak in expenditure.’

United States drives global growth in military spending

Military spending by the United States grew by 5.3 per cent to a total of $732 billion in 2019 and accounted for 38 per cent of global military spending. The increase in US spending in 2019 alone was equivalent to the entirety of Germany’s military expenditure for that year. ‘The recent growth in US military spending is largely based on a perceived return to competition between the great powers,’ says Pieter D. Wezeman, Senior Researcher at SIPRI.

China and India top Asian military spending

In 2019 China and India were, respectively, the second- and third-largest military spenders in the world. China’s military expenditure reached $261 billion in 2019, a 5.1 per cent increase compared with 2018, while India’s grew by 6.8 per cent to $71.1 billion. ‘India’s tensions and rivalry with both Pakistan and China are among the major drivers for its increased military spending,’ says Siemon T. Wezeman, SIPRI Senior Researcher.
In addition to China and India, Japan ($47.6 billion) and South Korea ($43.9 billion) were the largest military spenders in Asia and Oceania. Military expenditure in the region has risen every year since at least 1989.

Germany leads military expenditure increases in Europe

Germany’s military spending rose by 10 per cent in 2019, to $49.3 billion. This was the largest increase in spending among the top 15 military spenders in 2019. ‘The growth in German military spending can partly be explained by the perception of an increased threat from Russia, shared by many North Atlantic Treaty Organization (NATO) member states,’ says Diego Lopes da Silva, Researcher at SIPRI. ‘At the same time, however, military spending by France and the United Kingdom remained relatively stable.’
There wer
e sharp increases in military expenditure among NATO member states in Central Europe: for example, Bulgaria’s increased by 127 per cent—mainly due to payments for new combat aircraft—and Romania’s rose by 17 per cent. Total military spending by all 29 NATO member states was $1035 billion in 2019.

In 2019 Russia was the fourth-largest spender in the world and increased its military expenditure by 4.5 per cent to $65.1 billion. ‘At 3.9 per cent of its GDP, Russia’s military spending burden was among the highest in Europe in 2019,’ says Alexandra Kuimova, Researcher at SIPRI.

Volatile military spending in African states in conflict

Armed conflict is one of the main drivers for the volatile nature of military spending in sub-Saharan Africa. For example, in the Sahel and Lake Chad region, where there are several ongoing armed conflicts, military spending in 2019 increased in Burkina Faso (22 per cent), Cameroon (1.4 per cent) and Mali (3.6 per cent) but fell in Chad (–5.1 per cent), Niger (–20 per cent) and Nigeria (–8.2 per cent). Among Central African countries that were involved in armed conflict, military spending in 2019 rose overall. The Central African Republic (8.7 per cent), the Democratic Republic of the Congo (16 per cent) and Uganda (52 per cent) all increased military spending in 2019.

Volatile military spending in African states in conflict

• South America: Military expenditure in South America was relatively unchanged in 2019, at $52.8 billion. Brazil accounted for 51 per cent of total military expenditure in the subregion.

• Africa: The combined military expenditure of states in Africa grew by 1.5 per cent to an estimated $41.2 billion in 2019—the region’s first spending increase for five years.

• South East Asia: Military spending in South East Asia increased by 4.2 per cent in 2019 to reach $40.5 billion.

• The average military spending burden was 1.4 per cent of GDP for countries in the Americas, 1.6 per cent for Africa, 1.7 per cent for Asia and Oceania and for Europe and 4.5 per cent for the Middle East (in countries for which data is available).

SIPRI monitors developments in military expenditure worldwide and maintains the most comprehensive, consistent and extensive publicly available data source on military expenditure. The data is accessible on the Military Expenditure Database page of SIPRI’s website.

To download the fact sheet, visit: https://www.sipri.org/publications/2020/sipri-fact-sheets/trends-world-military-expenditure-2019