The World's Top 10 Largest Economies
When it comes to the top national economies globally, although the order may shift around slightly from one year to the next, the key players are usually the same. At the top of the list is the United States of America, which according to Investopedia, has been at the head of the table going all the way back to 1871. However, as has been the case for a good few years now, China is gaining on the U.S., with some even claiming that China has already overtaken the U.S. as the world’s Number 1 economy.
Nonetheless, going by nominal GDP measured in U.S. dollars alone, the U.S. maintains its spot followed by China and Japan. In this post we take a look at the world’s top economies according to our Consensus Forecasts for 2019 nominal GDP. We also discuss how the top economies change when looking at GDP per capita along with a highlight on emerging markets and their potential to catch up to the big players in the not too distant future.
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1. United States
Despite facing challenges at the domestic level along with a rapidly transforming global landscape, the U.S. economy is still the largest in the world with a nominal GDP forecast to exceed USD 21 trillion in 2019. The U.S. economy represents about 20% of total global output, and is still larger than that of China. The U.S. economy features a highly-developed and technologically-advanced services sector, which accounts for about 80% of its output. The U.S. economy is dominated by services-oriented companies in areas such as technology, financial services, healthcare and retail. Large U.S. corporations also play a major role on the global stage, with more than a fifth of companies on the Fortune Global 500 coming from the United States.
The U.S. economy is projected to grow 2.5% in 2019 and 1.7% in 2020.
The Chinese economy experienced astonishing growth in the last few decades that catapulted the country to become the world's second largest economy. In 1978—when China started the program of economic reforms—the country ranked ninth in nominal gross domestic product (GDP) with USD 214 billion; 35 years later it jumped up to second place with a nominal GDP of USD 9.2 trillion.
Since the introduction of the economic reforms in 1978, China has become the world’s manufacturing hub, where the secondary sector (comprising industry and construction) represented the largest share of GDP. However, in recent years, China’s modernization propelled the tertiary sector, and in 2013, it became the largest category of GDP with a share of 46.1%, while the secondary sector still accounted for a sizeable 45.0% of the country’s total output. Meanwhile, the primary sector’s weight in GDP has shrunk dramatically since the country opened to the world.
Today the Chinese economy is the second largest in the world and although it experienced massive growth in that 35-year span, authorities have taken a new approach to the economy called the “new normal.” To avoid overheating the economy, authorities are conducting a managed slowdown, which has seen growth gradually slow year after year since 2010. The economy is projected to grow 6.3% in 2019, which is nothing to sniff at, but is a far cry from the over 10% annual growth seen not too long ago.
The Japanese economy currently ranks third in terms of nominal GDP forecast to come in at USD 5.2 trillion in 2019.
Before the 1990s, Japan was the equivalent of today’s China, growing rapidly during the 1960s, 70s and 80s. However, since then, Japan’s economy has not been quite as impressive.
During the 1990s, also termed the Lost Decade, growth slowed significantly, largely due to the burst of the Japanese asset price bubble. In response, authorities ran massive budget deficits to finance large public works projects, however, this did not seem to get the economy out of its rut. A number of structural reforms were then enacted by the Japanese government designed to reduce speculative excesses from financial markets, however, this led the economy into deflation on numerous occasions between 1999 and 2004.
The next measure taken was Quantitative Easing (QE), which saw interest rates go zero and an expansion of the money supply to raise inflation expectations. After a period of not-so-positive results from QE, the economy finally appeared to respond. In late 2005, it outperformed both the U.S. economy and the European Union in terms of economic growth.
Despite what appeared to be a comeback, the economy has largely fallen on hard times since 2008, when it began to show signs of recession for the first time during the financial crisis. Japan’s issues stem largely from unconventional stimulus packages along with subzero bond yields and a fairly weak currency. Economic growth will once again be positive in 2019, however, it is forecasted to below 1% from 2020-2023. For 2018 we project 1.1% percent growth and 1.1% again for 2019.
In the ten years before the great recession, from 1999 to 2008, Germany’s GDP grew 1.6% on average per year. Owing to Germany’s dependence on capital goods exports, the German economy plummeted 5.2% in 2009, as companies around the world scaled back their investment projects in the wake of the financial crisis. The following year, Germany’s economy bounced back with a strong 4.0% expansion. The next years were overshadowed by the persistent Eurozone crisis, which dented demand in Europe’s southern countries. As a result, Germany’s economy grew at a lackluster pace annually between 2011 and 2013. The economy has since bounced back, as has the Eurozone economy, and it’ll keep its spot at 4th on the list of largest economies with a nominal GDP of USD 4.2 trillion according to our forecasts for 2019. Analysts see Germany growing 1.8% in 2019, coming in just below 2018’s forecast of 1.9%.
5. United Kingdom
In the 10 years before the Great Recession, from 1999 to 2008, the UK’s gross domestic product grew 2.8% on average per year. As a consequence of overinvestment in the housing market and consumer’s strong dependence on credit, the economy was hit very hard by the financial crisis and the credit crunch. In 2009, GDP fell 5.2%, mainly due to plummeting private fixed investment. However, GDP rebounded in 2010 to a 1.7% expansion. In the three subsequent years, however, growth did not post figures as strong as those before the crisis; average GDP growth was 1.0% in the 2011–2013 period. Since then growth has largely bounced back, however, Brexit uncertainty is still threatening the economy.
Before the referendum many economists and financial institutions projected that the economy would take a hit if the UK voted to leave the EU. Since the Brexit referendum in June 2016, prospects for the UK economy have become highly uncertain, however, the economic Armageddon that was predicted by some has yet to come to fruition. Nevertheless, growth has stuttered and lagged significantly behind the EU average since the start of 2017.
Brexit negotiations between the UK and the EU are yet to be finalized and there is precious little time left to get it done. Growth is likely to slow next year, as private consumption growth dips and fixed investment is dampened by pervasive uncertainty generated by Brexit. However, a stronger external sector and resilient global demand should cushion the slowdown.
The UK will stay in the top 5 largest economies list until 2020, with a nominal GDP of USD 3.2 trillion. Our panelists estimate GDP growth of 1.4% in 2018 and 1.5% in 2019.
India is projected to overtake both the UK by 2020 to become the fifth largest economy in the world with a nominal GDP of USD 2.9 trillion having overtaken the French economy in 2018.
From 2003 to 2007, India experienced high growth rates of around 9% annually before moderating in 2008 as a result of the global financial crisis. In the following years, India began to see growth slow due to a plunging rupee, a persistently high current account balance and slow industry growth. This was exacerbated by the U.S.’ decision to cut back on quantitative easing, as investors began to rapidly pull money out of India. However, the economy has since bounced back as the stock market has boomed and the current account deficit has decreased. India’s economy recently surpassed China's to become the world’s fastest growing large economy. We forecast India’s growth at 7.4% FY 2019.
France’s economy will be the seventh largest in the world in 2019, representing around one-fifth of the Euro area gross domestic product (GDP) at USD 2.9 trillion. Currently, services are the main contributor to the country’s economy, with over 70% of GDP stemming from this sector. In manufacturing, France is one of the global leaders in the automotive, aerospace and railway sectors as well as in cosmetics and luxury goods. Furthermore, France has a highly educated labor force and the highest number of science graduates per thousand workers in Europe.
Compared to its peers, the French economy endured the economic crisis relatively well. Protected, in part, by low reliance on external trade and stable private consumption rates, France’s GDP only contracted in 2009. However, recovery has been rather slow and high unemployment rates, especially among youth, remain a growing concern for policymakers.
After a period of volatile growth readings in recent years, growth appears to be finally on a steady track. FocusEconomics Consensus Forecast expect GDP to grow 1.7% in 2019 and 1.6% in 2020.
Italy is the world’s ninth-largest economy, however, the country suffers from political instability, economic stagnation and lack of structural reforms, which are holding it back. Prior to the 2008 financial crisis, the country was already idling in low gear. In fact, Italy grew an average of 1.2% between 2001 and 2007. The global crisis had a deteriorating effect on the already fragile Italian economy. In 2009, the economy suffered a hefty 5.5% contraction—the strongest GDP drop in decades. In 2012 and 2013 the economy recorded contractions of 2.4% and 1.8% respectively, however, the economy has gradually improved in recent years. Nonetheless, it continues to be burdened by numerous long-standing structural problems, including a rigid labor market; stagnant productivity; high tax rates; a large, albeit declining, volume of non-performing loans in the banking sector; and high public debt. These weaknesses restrain the country’s growth potential, keeping its growth outlook below that of its European peers.
FocusEconomics panelists see nominal GDP coming in at USD 2.1 trillion in 2018, increasing 1.3% annually.
In the 10 years before the global economic crisis, from 1999 to 2008, Brazil’s GDP grew 3.4% on average per year. This growth was driven, in part, by global demand for Brazilian commodities. After experiencing formidable growth in 2007 and 2008, Brazil’s economy shrank 0.3% in 2009 as demand for Brazil’s commodity-based exports fell and foreign credit waned. However, Brazil rebounded strongly the following year, growing 7.5%-the highest growth rate Brazil had experienced in 25 years. Since then, growth has slowed-partially due to rising inflation-and Brazil’s economy grew an average of 2.1% annually from 2011 to 2013.
Since then a combination of the ending of the commodities super cycle, tight credit conditions and political turmoil due to various corruption scandals have kept Brazil’s economy down. However, Brazil keeps its spot in the top 10, albeit one notch lower than last year with Italy projected to overtake it in 2019. The economy is expected to grow 2.3% in 2019 after contracting by over 3.0% just a few years earlier in both 2015 and 2016. Brazil is forecast to have a nominal GDP of USD 2.0 trillion in 2019.
Last but not least we have Canada, the 10th largest economy in the world, just ahead of Russia. From 1999 to 2008, Canada posted strong economic growth and GDP expanded 2.9% annually on average. Due to its close economic ties to the United States, in the crisis-year 2009 Canada’s economy contracted 2.7% over the previous year. Canada did manage to recover quickly from the impact of the crisis, however, thanks to sound pre-crisis fiscal policy, a solid financial system, a relatively robust external sector and the economic strength of its resource-rich western provinces. Since 2010, growth has picked up again and between 2010 and 2013 Canada’s economy expanded 1.4% per year on average. After the end of the commodities super cycle, the Canadian economy took a hit, but it has slowly recovered in recent years. FocusEconomics panelists expect GDP to come in at USD 1.8 trillion with an annual growth rate of 2.0% in 2019.
The Trillion Dollar Club
Going forward what other countries could join what is called the Trillion Dollar Club and possibly crack the top 10?
The Trillion Dollar Club is an unofficial classification of the largest economies in the world with nominal GDP of more than, yup, you guessed it, one trillion U.S. dollars. Currently there are 16 economies that make up the Trillion Dollar Club with a 17th projected to join the club once 2020 growth figures are released in early 2021, that being the Netherlands. After that it’ll be some time before a new economy joins the club.
In terms of other countries that could crack the top 10, Russia and Korea are right behind Canada in 11th and 12th place respectively, while Spain, Australia and Mexico and Indonesia aren’t too far behind, rounding out the top 16.
What about GDP per capita?
The top 10 economies in the world account for about 70% of the world’s GDP, which is pretty staggering. But does a large economy necessarily mean that the average person is having a good time? Well, not necessarily. If we look at GDP per capita, which generally gives us an idea of the living standards and quality of life of a country’s residents, the list changes up quite a bit.
The U.S. moves down to sixth on the list, while the rest of the top 10 largest economies fall substantially. Canada is next on the list of top GDP per capita economies at number 17 directly followed by Germany while China moves all the way down to number 62.
Here are the top 10 projected economies in terms of GDP per capita in 2018 according to the FocusEconomics Consensus Forecast:
What can we expect 5 years from now in 2023 and beyond?
Regarding the largest economies, as you might expect it’ll still be the same players in 2023, however, after overtaking the UK and France by 2018, India will also be gaining on Germany by 2022 to take that fourth spot behind Japan.
Apart from the top economies, everyone’s favorite topic, the emerging markets, will become vitally important to the global economy in the next five years. Although you can expect per capita GDP to still be the highest in the developed world by 2022, the fastest growth in GDP per capita will indeed come from the emerging markets. According to our forecasts, the highest per capita growth from 2017–2023 will be in Mongolia with an 89% increase in that time span, followed by Myanmar, Egypt, Serbia and Bangladesh with 83%, 80%, 79%, and 67% growth in per capita GDP, respectively.
Emerging markets are certainly catching up with the progress of the developed economies and according to many analysts they will catch up to many developed economies by 2020. This of course will cause a significant shift in the balance of power across the global economy and will represent vast new opportunities for domestic and international businesses.
With higher GDP growth in emerging markets will come higher household incomes and with generally younger populations, these economies will begin to play an ever more important role in the global economy. Services and consumer goods companies will have a tremendous opportunity to expand into these markets, and luxury goods will finally become available as more people become part of the middle class. Emerging markets are also likely to become more important foreign investors, rather than just being invested in. Investments into these nations will increase, furthering their economic growth, however, their own investments will only serve to enhance their position in the global economy.
As mentioned previously, by some calculations China is already the largest economy in the world, however, it appears that the new golden child is India. It is thought to be closer to usurping third placed Japan than China is likely to overtake the U.S. in the near future. It is believed by some that India and China may actually push the U.S. down to third place during the next decade citing in India’s case that its young and faster-growing population will be the likely key drivers of growth. This would be quite the feat considering, as mentioned previously, the U.S. economy has held the number 1 spot since 1871.
With commodities prices coming back and expected to increase in 2019, countries like Brazil and Russia, rich in natural resources, are also tipped to come up in the world rankings of top economies.
2019-2020 Outlook for Emerging Economies
A variety of different scenarios could play out by 2022, but for next year global economic growth should remain resilient next year, but escalating trade tensions between the United States and the rest of the world—especially China—represent the main downside risk to the global economic outlook. Moreover, economic momentum in the U.S. is set to ebb due to the fading impact of tax cuts, which could have a knock-on effect on other countries which rely heavily on the U.S. for trade, including many emerging markets. Moreover, the Federal Reserve will likely continue to tighten its monetary stance to keep inflation in check, which will tighten global financial conditions and could trigger further emerging-market capital outflows and currency depreciation. Analysts expect the global economy to grow 3.2% in 2019, while in 2020, the global economy is seen decelerating to 2.9% growth, as tailwinds start to wane.
Among those famous emerging markets, next year, the Asia region (ex-Japan) will likely feel the pinch from rising trade disputes, cooling growth in China and financial volatility, although growth will still be the envy of most other regions. Eastern Europe will likely lose some steam on slowing growth in the EU—a key trading partner—and a sharp slowdown in Turkey. Latin America should gain steam next year thanks to improving dynamics in Argentina and Brazil. Despite higher oil prices, mounting geopolitical risks and a sharp recession in Iran will dent growth prospects in the Middle East and North Africa, while the economic recovery in Sub-Saharan Africa will gather steam in 2019 due to stronger performances by heavyweights Nigeria and South Africa.
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5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Originally published in December 2017, updated in November 2018
Date: November 8, 2018
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