Economics: Why A Global Recession Is Highly Unlikely

(Drivebycuriosity) - There is a lot talk about a coming global recession. Some are even fantasizing about the return of the financial crisis. I believe that a global recession is highly unlikely. The reason: The global economy has changed much since 2008 significantly. Today the global economy depends much less on the US & Europe and the world is more diversified and balanced.

The chart below shows how much the global economy has changed and is still changing. Today the Asian emerging markets, lead by China & India, create 34% of the global GDP, almost as much the US & Europe together.  Even if the  US & Europe would shift into a deep recession, as they did in 2008,  the negative drift would be compensated by the strong growth in Asia.

China proved already in the recession 2008/09 that it can weather a sharp drop in export demand. Even though exports to the USA & Europe dropped sharply thanks to the economic crisis in the Western World, China could avoid a recession (falling GDP) by stimulating domestic demand (consume, investments). Since then China got much stronger with a much bigger domestic economy. Since 2008 China´s GDP has more than doubled (source).

I think China´s growth will continue. The country is still in the begin of a secular catching-up process which is fueled by extreme income & wealth differences to the US and other Western nation values. Today China has about $8,800 income per capita, the US number is $59,500 (worldbank). China doesn`t have much commodities but it owns a huge amount of human capital: 1.4 billion people who are intelligent, who work hard and save a lot money to achieve a better life. China`s growth is fueled by a rapid transformation process.  The country is transforming from an industrial & export-focused economy into a modern system like the US, where most of the GNP is fueled by consumer spending. Many peasants are moving to the huge metropolitan centers which are spread all over the huge country to lift their standard of living. This creates a fast rising affluent middle class, giving consumer spending a boost as the strong retail sales demonstrate  (growth rates about 8% tradingeconomics). The consumption power of 1.4 billion Chinese population becomes more and more the growth engine of Chinese economy. China´s growth gets tailwinds from the technological progress and advances of Internet, automatization of industrial production and 3D-printing. These developments raise efficiency and  productivity of China´s economy

India - and other Asian countries - are following China´s example. They are catching up and modernizing their economies driven by a rapid urbanization & technological progress. As a result Asian countries are getting more & more independent from the West and are stabilizing the global economy.