The world economy is in its fourth year of buoyant growth. It has survived a host of perils: collapsing stock markets, terrorism, wars, soaring prices of oil and other commodities, protectionist pressures, a failing round of multilateral trade negotiations and persistent "global imbalances".

Yet new challenges are emerging - notably, this summer’s crisis in credit markets and the weakness in the US housing market - that may prove harder to cope with. At best, big adjustments lie ahead. At worst, the world economy may face a period of upheaval.

The driving forces behind today’s buoyant world economy are globalisation and the entry of countries with almost limitless human resources. China and India contain between them not far short of two-fifths of the world’s human population. The developing countries of east and south Asia contain slightly more than half of all the people on the planet and more than three times as many people as do all of today’s high-income countries.

The entry of these nations into the modern world economy is an event that falls short only of the industrial revolution in significance.

Driven by the collapse in the costs of collecting and communication of information, the low costs of transport by sea and air and ongoing economic liberalisation, the new players are becoming increasingly significant in world output, trade, consumption of resources and supply of capital.

In the first decade of the third millennium, the growth of the advanced countries has been remarkably weak. What has been outstanding is the soaring growth of the emerging economies. Never before has the gap between the performance of emerging and advanced countries been so large.

The remainder of the column can be read here. Comment from our expert panellists appears below.

October 17th, 2007 in Global economy | Permalink