WASHINGTON, DC – Whether we like it or not, the world around us is in a state of constant change. But recent economic trends suggest that this change may be shifting its direction in a fundamental way.
Consider the advanced economies. During the last two decades, economic growth in these countries was led by consumption – so much so that economic activity in these economies swung from investment to consumption by a total of 10 percentage points of GDP. As a result, in 2010 the share of consumption in their GDP had reached 81.6%.
(In percent of GDP)
Emerging and developing economies
Meanwhile, emerging markets and developing economies provided almost a mirror image of this trend, raising their investment and boosting the supply of goods to the rest of the world at the cost of consumption in their own economies. By 2010, the share of consumption in their GDP had declined, from 73.4% to 67.1%.
Looking forward, it is unlikely that the consumption share of GDP can increase further in advanced economies. The main drivers of this increase were primarily financial engineering and wealth effects from strong asset prices. Neither of these factors currently is at play to push consumption’s share of GDP higher.