The world economy is approaching a tipping point. For the first time in modern history, the three economic blocs, the United States, Europe, and Asia, now have equal economic weight, in terms of GDP expressed in constant dollars. In addition, the Asian giant would be on track to surpass its international peers in size in the next five years.
In this context, the increase in geopolitical tensions in the world should not come as a surprise. Investors should pay more attention to Asia as a de facto economic union and to the role China plays in developing this already efficient industrial ecosystem.
1. At present, China is already one of the largest sources of foreign direct investment (FDI) flows of the world; much of these flows are directed to other Asian countries.
2. Intra-Asian trade is already intense, almost as much as that of the European Union and more than double that of the North American Free Trade Agreement (NAFTA). Economic sanctions against China will likely lead to a more robust Asia, as most of the divested industrial capacity will likely stay in Asia.
3. With the Asian Economic Union effectively acting as China’s protective shield against foreign economic sanctions, it is on record that the The only country that can stop China’s economic rise is China itself.
Geopolitical tensions between the United States and China have escalated since Russia’s invasion of Ukraine. However, the possible anguish on the part of the North American country at hearing the footsteps of the Asian giant catching up would have already begun to influence its policies long before the war.
The graph below shows that, for the first time in modern history, the constant values (real, adjusted for inflation) of the GDP in dollars of the three main economic blocs that we mentioned -USA. USA, EU-27 and emerging Asia- they are about to cross. Specifically, emerging markets in Asia are expected to exceed the GDP of the EU-27 by 2025 and the US by 2030.
Growth momentum in Asia is considerable, despite the struggles in China: by 2023, the IMF World Economic Forum Report projects that around 70% of global growth will come from Asia. In our view, Asia’s dominance as the main driver of global growth is unlikely to change in the coming years.
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