The rapid growth of emerging economies may lead to a long-term shift in global economic power – and that could affect how freight flows around the world. That’s the analysis encapsulated in a new study, Perspectives on Global Development: Shifting Wealth, published by the Organization for Economic Co-Operation and Development (OECD), based in part on research by the late economist Angus Maddison.
The OECD report predicts that the aggregate economic weight of developing and emerging economies should surpass that of the countries that currently make up the advanced world (the U.S., Europe, etc.) within the next two decades – rising from 40% of the world’s total economic power in 2000 to 49% today-- and 57% by 2030.
“While the 1990s was a lost decade for much of the developing world, growth rates picked up significantly in the 2000s, with the number of developing countries beginning to converge strongly with the affluent OECD countries leaping from 12 to 65,” the OECD said in its study. “The strong performance of China and India, in particular, has had a significant impact on the rest of the developing world.”
Since 1990, the number of people in the world living on less than a dollar a day has fallen by over one quarter, or approximately 500 million. So far, however, these reductions have mainly been concentrated in one country – China – but that is beginning to change, noted Angel Gurría, Secretary-General of the OECD, in a recent speech.
“Thanks to the rapid growth rates in emerging economies, their governments can now afford to boost public spending on social protection. This is a powerful tool to reduce inequality,” he noted. “Investing in social infrastructure may also contribute to diminishing the propensity to save of these economies, contributing to a more balanced global economy.”
Due to their rapid growth and sheer size, India and China will remain key influencers of macroeconomic variables that matter for poor countries – interest rates, the price of raw materials, and wage levels for low-skill jobs – and will continue to have major impacts on global trading and investment patterns.
That includes projected freight demand, a trend many global transportation companies are now responding to. For example, FedEx noted in its annual earnings statement that its FedEx Express division posted strong revenue, income, and margin gains in its fiscal fourth quarter due almost entirely to demand from Asia.
FedEx Express’ revenue jumped to $5.88 billion in its fiscal fourth quarter, up 23% from last year’s $4.8 billion , with operating income reaching $413 million, compared to an operating loss of $136 million a year ago, while operating margins jumped to 7.0%, up from 2.8% the previous year.
In particular, FedEx International Priority (IP) average daily package volume increased 23%, led by exports from Asia. IP revenue per package grew 6% due to higher weight per package, higher fuel surcharges and a favorable exchange rate impact. By comparison, U.S. Express domestic revenue per package grew 8% due to higher fuel surcharges and improved weight per package, while average daily package volume only increased 1%.
“Operating profit and margin improvements were driven by volume and revenue growth, particularly in higher-margin IP package and freight services,” noted Alan Graf, Jr., FedEx’s executive vp & CFO in the company’s earnings report. “We expect continued improvement in both revenue and earnings in fiscal 2011, [with] resumed growth in industrial production and global trade is increasing demand for our transportation services.”
In its report, OECD added that poor and struggling countries will need national development strategies that respond to these global trends to ensure they thrive in a global economy in which China and India have greater weight.
It also found that more could be made of the economic ties between developing countries, with "South-South links" in trade, aid and investment, along with lower tariffs on trade to the levels that prevail between northern countries. Implementing such strategies, would be worth almost double the gains achievable by a similar reduction on North-South trade, said OECD.
And that would be good for the global economy, OECD’s Gurria added. “Growth in the developing world is an opportunity for the global economy to shift up a gear, which is confirmed by the role some emerging economies are playing in the current economic recovery,” he said.