Growth and Growth

Are we exiting the crisis series that began in 2007: homeowner default, credit swap default, bank liquidity, economic recession, sovereign debt, currencies, and now commodities? The better question is rather: what will be next? But in the meantime a discussion is going on about when will the BRIC countries take over the economic command of the World. Their growth rates are much higher than those of western Countries and shall surpass them some time in the future. But: of which growth do we speak about? Relative or absolute?

Source: World Bank (at constant 2000 US$)	GDP Growth average 1999-2009 in % per year	GDP growth per capita average 1999-2009 in US$ per person and year
Brazil	3.3	82
Russia	5.4	119
India	7.1	31
China	10.3	132
USA	1.8	296
Euro Area	1.3	162
Singapore	5.5	748
Switzerland	1.7	324

So, over a ten year period, when China GPD annual growth rate is more than six times faster than Switzerland, the value created by each person is Switzerland during that same period is on average two and half times larger.

What do you prefer: to grow at 10.3 % from a $2’200 basis or at 1.7% from $37’000 basis?

The difference in the starting point is huge; this is why the high [relative] growth rates of the emerging countries are impressive. But, having reached a high level of income the rich countries generate more richness but it looks relatively modest.

Lessons learned:

1. The old World is rich and does not sleep in creating even more value.
2. Don’t extrapolate too much: expect that the high rates will flatten when the absolute levels will be higher.
3. In statistics always look at absolute data first, and then make some ratio­, like percentages, to confuse yourself and your audience.

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