The World's 5 Strongest Economies

The World Bank's latest update to its "World Economic Outlook," survey, released in October of this year, is aptly titled "Transitions and Tensions." The document points out that the catalysts for global growth are in a state of flux, and predicts that developed economies will propel world growth in 2014, just as emerging economies cool off. To use a sports analogy, developing economies are executing a lateral pass to their slower growing, mature-economy teammates (who seem surprised to receive the football).

Given the fluid state of global economic drivers, which are the five strongest world economies going in to 2014? Some of them may surprise you.

Defining a "strong economy"
Healthy economies tend to exhibit several common characteristics, such as high GDP growth, low interest rates, low unemployment, a stable banking system, a young population, a firm current account balance, and burgeoning trade, to name a few.
When we start comparing countries relative to one another, however, there's no avoiding size: ultimately, a primary component of economic strength is the value of goods and services a country can produce. Sizeable economies provide supply to the global economy via their output, but they also propel the world's economic engine via their demand for raw materials, energy, services, and products.

Thus, in discussing which economies can be characterized as the strongest in the world heading into 2014, we will use the world's 15 largest economies as a starting point, each of which has total annual GDP in excess of $1 trillion. These countries are, in alphabetical order: Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, Russia, South Korea, Spain, the United Kingdom and the United States. The results?

No. 1: the United States
The U.S. was the sleeper-hit of the global economy in 2013. Marked by a steady trend of GDP growth rate increases, surging stock markets, deficit reduction, and declining unemployment, the U.S. economy is brimming with short-term potential. When you include an energy boom, an entrepreneurial culture, low interest rates and the resurgence of manufacturing, you've got a recipe for continued expansion in 2014. And that expansion may no longer be so tepid: Third-quarter U.S. GDP was revised upward earlier this month from 2.8% to 3.6%. These factors, combined with the enormous scale of a $15.7 trillion GDP, portend a significant impact on the world economy in 2014.

While 2014 is the United States' oyster, beyond the short term, brooding clouds await. The threat of long-term budget deficits looms over the United States. In addition, continued political dysfunction has not only decreased the country's creditworthiness, but it's also diminished corporate confidence, a key ingredient for sustained economic growth. Finally, quantitative easing by the Federal Reserve is still a wild card: It's anyone's guess how the economy will absorb the absence of the Fed's bond buying in 2014.

No. 2: China
China continues to gleam with a number of superlatives to its name as we approach 2014: Of the 15 largest world economies, it possesses the highest GDP year-over-year growth rate at 7.8%. It also has the third lowest proportion of debt to GDP at 26%. China is trading partner to the world, with 124 countries identifying China as being their largest trading relationship.

But near term, newly installed Chinese President Xi Jinping has much to worry about within the placid administrative garden compound of Zhongnanhai in Beijing. GDP growth, while still torrid compared with that of developing nations, has fallen off recently from the 10% growth rate achieved many times over the past two decades: 7% to 7.5% may be a more sustainable rate for the next few years. The country is at the outset of a multi-year effort to transform from a producer economy to a consumer led economy, where the service sector will provide growth and stability for the working population.

While effecting this transition, Chinese leaders must deal with administrative and private-sector corruption, easing social ills such as pollution in major cities, and addressing income inequality between urban and agrarian populations. There's also the threat of credit bubbles in both the state-sanctioned credit markets and China's infamous "shadow banking" economy. To use the World Bank's terminology, 2014 will be a year of tension and transition for the world's largest country by population.

No. 3: Germany
Germany is one of the anchors of the world economy, and at $3.4 trillion annual GDP, it accounts for nearly 28% of the eurozone economy. Under Angela Merkel's steady leadership, the country has provided stability to the euro area while taking advantage of a weaker euro over the past couple of years to ramp up on exports. The country has the highest current account balance as a percentage of GDP among the world's 15 largest economies. A high current account balance indicates that a country is a competitive exporter with a high domestic savings rate.

Germany has encountered a speed bump this fall, as unrevised numbers suggest that industrial output declined by 1.2% in October. However, given the country's dynamic economy, look for any slowdown to be temporary. Rather, if you belong to a eurozone country, keeps your fingers crossed that the locomotive continues to issue dense steam in 2014.

No. 4: South Korea
Of the 15 largest world economies, South Korea ranks 15th. But at 3.3%, its $1.1 trillion economy is growing at a faster annual rate than all countries in the group except for India (4.8%) and China (7.8%). The South Korean economy is characterized by manufacturing and technological innovation, a trait it shares with the United States. With each passing year, South Korea marks a transition from regional dynamo to global powerhouse. Brands such as Samsung, Hyundai, LG, and Kia are household names and account for billions of the country's output. South Korea just marked its fastest quarter over quarterly growth in two years, as GDP grew 3.3%.

Here's a caveat to consider: South Korea surprisingly has one of the older populations among leading industrial nations, at a median age of 39.7 years. While its population is not as aged as Germany's or Japan's (each near 46.0 median age), it doesn't have the youth of the U.S. or China (37.2 and 36.3 median age, respectively). The aging of the South Korean population represents a medium-term growth risk in an otherwise healthy economy.

No. 5: Japan
With its seemingly permanent state of deflation and flat economic growth, it's easy to forget that the tiny island nation of Japan has an economic output that's almost three quarters that of China's, despite having only 9% of the population, and less than 4% of China's landmass. At nearly $6 trillion of GDP, it's the only country that can be truly said to be in the same output league as the U.S. and China. Prime Minister Shinzo Abe's attempts to jumpstart the economy have been effective in 2013, and although the success of "Abenomics" will take time to ascertain, for now it has provided a fiery spark to an economy too large to ignore. Look no further than the previously moribund Japanese stock market, as measured by the Nikkei 225 Index: With just two weeks left in the trading year, it's returned a vertiginous 50% year-to-date.

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  • Report this Comment On December 15, 2013, at 4:06 AM, metou wrote:

    The key to a strong ecomony is strong employment boom , untill you have that your econmony will be down hill or a very, very slow climb taking years with tiny improvement each year. Employment pretty much fixes all the other problems, people have money so they buy more , like houses , cars etc that fixes the housing market, raises interest rates, thru lots of house sales , people pay more money for taxes from what they buy and earn , that helps the inner structure. people spend more money they earn, that makes other parts of the econmony strong, it ups production of cars and houses , food items etc. This is the part obama doesnt get now , he talking about creating jobs etc before elected and he really has nothing and done very little to create new good paying jobs , like he waiting for it to take care of itself in time meaning years , so it drags along. Really in a country this size it should be like obama said , everyone that wants a job should be able to get a job, but he kind of lost that.

  • Report this Comment On December 15, 2013, at 6:53 AM, scipiojr wrote:

    Metou I'd say you're blaming the wrong person(s) .I agree our job situation should be better, but I'd blame Congress, specifically the House. What could Obama do without their help? I'd suggest, for example, an infrastructure program perhaps funded by a small gas tax increase. Our infrastructure is in bad shape-roads, the power grid, etc. The constant struggle over the budget, largely the far Right in the House's fault, has hurt the confidence of business as recent moves by the Chamber of Commerce indicate. But things are getting better as one of the authors in the Motley Fool stated recently---household debt is down sharply, etc.

  • Report this Comment On December 15, 2013, at 8:34 AM, uhwilms wrote:

    I could have named these countries as top 5 without doing research ...

  • Report this Comment On December 15, 2013, at 9:26 AM, oceanrider wrote:

    I wonder if all the deficit spending/quantitative easing/ printing fiat currency, to the tune of $86 billion dollars a month, has something to do with the USA being on top. In order to be a true super economy, one has to produce real goods and services. It would be more reassuring if the USA had real jobs, no welfare kingdom, and low debt.

  • Report this Comment On December 15, 2013, at 10:05 AM, jake1441 wrote:

    While I wouldn't disagree with the top five listed, there is a heavy bias in it. It prefers the large counties with some economic problems over the smaller ones with better economic statistics except for the ones related to gross size.

  • Report this Comment On December 15, 2013, at 10:13 AM, TMFfinosus wrote:

    Metou and scipiojr, in my opinion, both parties and both branches (legislative and executive; let's leave out the judicial branch although it certainly wields economic influence) could do a better job looking out for the interests of our economy. Coming to a consensus on the actions that will help the economy prosper long term should override partisan interests on either side. Self-interest, self-dealing, inflexible ideology, and the influence of major campaign contributors and also lobbyists -- these ills taint both parties. Thus you and I lose out -- just my two cents.

    Uhwilms, if this were 2007 I might agree with you. Frankly I was surprised in researching this article what strong shape the older, more mature economies are in (in the near-term). Next year's list may be more interesting to you: would you believe that Mexico will be knocking on the top fives' doors in 2014?

    Oceanrider, I'm worried about the rollback of QE too. After the next one to three years, the outlook for the U.S. really clouds over. I do believe however that the economy has real substance and pent-up capacity, but we can't see this as corporations are choosing to buy back shares rather than invest further in the economy: this is due to their well-placed mistrust of our politicians' shenanigans. Politics in my opinion is shaving basis points from our potential GDP every single quarter.

    Thanks all for commenting!

    Asit

  • Report this Comment On December 15, 2013, at 10:18 AM, TMFfinosus wrote:

    jake1441,

    If you take out the size bias (which I explain at the outset) there are some really interesting players emerging on the global stage. Here are a few I encountered: Chile, Denmark, UAE, Singapore, & Mexico (which actually just makes the top fifteen by size). And Ireland looks like it's coming to life again. It will be fun to watch these countries over the next five to ten years.

    Best,

    Asit

  • Report this Comment On December 15, 2013, at 11:45 AM, deutschlandheute wrote:

    I allways believed and stated so, that as long Germany was, is and will be a Nation, it will be the Heartbeat of Europe

  • Report this Comment On December 15, 2013, at 2:53 PM, commonsense13 wrote:

    Wow surely not!!!!! how about just a few facts

    United States-

    -just hit a record high for the amount of people on food stamps

    -almost half the jobs that have been created since 2008 have been government related

    -and dont even get me started how much money the FED has used to raise the dow to record highs which has inadvertently made the most of the world want to move away from the US dollar.

    -I could go all day

  • Report this Comment On December 15, 2013, at 3:37 PM, GaryDMN wrote:

    "deficit reduction, and declining unemployment," - seriously, is this a White House press release? People have exhausted unemployment or didn't qualify, don't have jobs and there are a greater actual number of people without jobs, than at anytime in history. Debt is at an all time high, not just government debt, but consumer and corporate debt too. The market is doing well due near zero interest rates, that drops their dept service costs, which translates to higher profits.

  • Report this Comment On December 15, 2013, at 5:25 PM, wendy2010 wrote:

    deutschlandheute

    FROM UK

    GERMANY NEVER RULED THE WORLD, NEVER HAD AN EMPIRE AND NEVER WON A WAR

    The only empire that we had in Europe was the British and the Roman empire. Uk or Italy will soon leave from the eu, than the eurozone will collapse germany included

    Germany in 2005 was called the sick man of europe, low growth and high % of unemployment rate, after join the eu germany manipulated the eu law in their favor and against others

    Check on yahoo "EUROPEAN WEALTH REPORTS: WHY "MEDIAN" ITALIANS ARE FAR RICHER THAN GERMANS"

  • Report this Comment On December 15, 2013, at 11:15 PM, rtesmer wrote:

    Strong countries don't need to print >$1 Trillion per year to keep their fiscal heads above water… US, Japan and China on that basis don't appear too strong to me…

  • Report this Comment On December 16, 2013, at 1:09 AM, octopussoup wrote:

    Not taking debt into the equation?

  • Report this Comment On December 16, 2013, at 2:19 AM, JAMESJOO wrote:

    Hi~

    I'm from Korea. (of course, from South Korea otherwise I wouldn't have a chance to write my opinion freely)

    Here in South Korea, Middle-class is on the brink of bankruptcy.

    Political unstablity has been growing since last Presidential Election.

    SAMSUNG, LG, Hyundai, Kia? That's all.

    SAMSUNG dose not have labor union.

    (You know what it means.)

    Hyundai? Kia? We buy cars at double the price you pay in the US

    I do not understand why Korea was selected as No.4

  • Report this Comment On December 16, 2013, at 7:01 AM, mikem54321 wrote:

    Obviously Asit Sharma has taken the red pill....or...this is a hilarious parody!

  • Report this Comment On December 16, 2013, at 7:40 AM, jojom wrote:

    What about Australia?

  • Report this Comment On December 16, 2013, at 10:46 AM, TMFfinosus wrote:

    deutschlandheute, personally I wouldn't go that far...

    commonsense13, GaryDMN, rtesmer, & octopussoup: as you can see from the first few paragraphs, this article deals with the relative strength of global economies in 2014. I share your long-term misgivings about the U.S. and China and have mentioned several long-term weaknesses each faces. But it's most probable that the global economy will be propelled by the larger, more mature economies this year. This is not only the World Bank's forecast, it's a growing realization by various well-regarded economists: http://goo.gl/AhrwCT

    Jamesjoo: some interesting facts: of the 15 largest world economies, South Korea is:

    3rd in annual GDP growth

    3rd in quarterly GDP growth

    5th lowest inflation rate

    1st in jobless rate (lowest of all fifteen)

    4th in Debt to GDP

    5th best current account balance

    That's how they made the list.

    mikem54321: I tried to write several hilarious parodies when I was younger, but Lorne Michael finally had security ban me from any further SNL auditions, so brother, believe me, this article is straight up. As for the red pill, where I can I obtain this?

    jojom: Australia belongs to a small group that can legitimately challenge for a top five spot over the next few years. In fact, Brazil, India and Russia each neglected appropriate restructuring of their economies/investment in infrastructure during the last three years of emerging market boom, so there is some sense that Australia can grab the mantle of an investment friendly, relatively higher growth economy. The BRICS look pretty shaky right now (outside of China). Canada could also challenge for a top five spot in the next few years, as it's a stable economy and a sizeable one at that.

    Thanks every one, I really appreciate the dialogue!

  • Report this Comment On December 16, 2013, at 11:49 AM, TMFfinosus wrote:

    Wendy 2010, U.K. economy is just looking for a spark. Hail Britannia.

    -Asit

  • Report this Comment On December 16, 2013, at 12:14 PM, bama59 wrote:

    Where and what are the manufacturing boom(s) you mention in the U.S.? Are you talking about the auto manufacturing that is happening in the southeast or is there something else?

  • Report this Comment On December 16, 2013, at 12:14 PM, bama59 wrote:

    Where and what are the manufacturing boom(s) you mention in the U.S.? Are you talking about the auto manufacturing that is happening in the southeast or is there something else?

  • Report this Comment On December 16, 2013, at 12:29 PM, TMFfinosus wrote:

    Hi bama59:

    I think I mentioned an energy "boom" and a manufacturing "resurgence." I'm not sure anyone's ready to call manufacturing's recent surge a boom, not just yet. The auto sector is absolutely part of manufacturing's recent rise, as is the aviation industry, just to name two. The southeast (where I happen to live, in NC) is certainly seeing activity from both of these industries. If you've got some time though, check out this article by the Boston Consulting Group, who made a spot-on call (I think it was 2011 or 2012) that we would see a significant bump in manufacturing in the U.S. This article explains what's happening domestically, and puts it in a global context. http://goo.gl/IxzOZk

    Thanks for the question!

    Asit

  • Report this Comment On December 16, 2013, at 4:08 PM, Warren321 wrote:

    I'm from China, of course, the economy here is good, but an upward movment in property price put a lot of stress on young stuffs like me, drive me want to work abroad, and not mention high pollution

  • Report this Comment On December 16, 2013, at 10:58 PM, downtoearth15 wrote:

    The US??? HA!!! That's a laugh riot. One of the worst economies is more like it.

  • Report this Comment On December 17, 2013, at 1:14 AM, TMFfinosus wrote:

    Warren321, if you want to work abroad dude, come over here to the U.S. and help us keep our small edge over China!! Seriously, I think the new Chinese administration is going to tackle both pollution and the asset inflation with vigor. The question is, too little too late?

    downtoearth15, don't agree with you, but if we don't fix the longer term structural issues here (mentioned in the article) I might be joining the laugh riot, with a few bitter tears thrown in.

    -Asit

  • Report this Comment On December 17, 2013, at 2:59 AM, chairmanwow wrote:

    You are brave, Asit. Anyone who makes a Top 5 is going to get shot down. Here are my "bullets":

    1. Norway

    2. Canada

    3. Sweden

    4. Singapore

    5. China/Germany

    To my mind, you can't talk economic strength of a country or a company without looking at the balance sheet. Japan is functionally insolvent. The US needs $85B in free money pumped into the financial sector just to eek out 2% growth in GDP. Germany and China only barely make the list because of their industrial production capacity and relatively low debt levels by comparison, but both have dangerously over-leveraged banking systems that could trigger a financial collapse at any moment.

    When you rank "strong" economies, I don't see how you can seriously ignore countries like Norway (who run a massive surplus, have a rich population, and are blessed with abundant resources), Canada (extraordinarily stable banking system, low debt/GDP, educated population and industrial base, abundant resources), Sweden (similar strengths), or Singapore (the financial epicenter of Asia, with booming economy). Just because they aren't as large as the ones you list doesn't mean they aren't much stronger.

  • Report this Comment On December 17, 2013, at 3:03 AM, chairmanwow wrote:

    Oh, any you can't attribute Germany's relative economic to a "weaker Euro."

    Over the last 18 months or so, the Euro has been the strongest major currency in the world, appreciating against everything else. Germany is an exporting powerhouse because it makes great, innovative products that people want to buy and are willing to pay for, not because the currency is cheap.

  • Report this Comment On December 17, 2013, at 10:34 AM, NickD wrote:

    America immigration policy is very relaxed give us your tired poor huddled masses.America would be way better then Norway if we decided to get rid of anyone that wasn't rich.

  • Report this Comment On December 17, 2013, at 12:56 PM, TMFfinosus wrote:

    Hey chairmanwow,

    Not brave but curious enough to see what people think as to go out on a limb!

    On your points in general, this article is about 2014. The near term is all about the continued pull away from global recession. Will we reach escape velocity? Feels like it to me but still anyone's guess. And I happen to be a very balance sheet-oriented type of guy; if you get a chance, please read almost any of my articles on individual companies.

    Sure, sovereign state balance sheets must be considered, and debt does count. But let's be real here. The global balance sheet is bust. Take America's debt and unbooked liabilities, the same with China (shadow banking /off balance sheet debt). Add those trillions up and the world is already broke. The reason imho that these two should even be considered is the sheer demand they will create in 2014, which most of the rest of the world's GDP will obsessively meet. They are in a relative position of strength in a cracked global system, and I realize the irony in stating so.

    Your list is interesting. To that I say,

    1. Norway / good logic.

    2. Canada / stable but where will growth come from in 2014? Concentrated economy in energy is vulnerable. Housing bubble in progress. I propose #5 using your criteria.

    3. Sweden / ok, Denmark is also interesting (we should also think about quality of life)

    4.Singapore / Yes! I think UAE is another Singapore give another few years

    5. Germany makes more sense to me given your view.

    And don't forget about Mexico. Despite all its problems, a vibrant economy, up and coming.

    Good stuff here chairmanwow and thanks for engaging.

    A

  • Report this Comment On December 17, 2013, at 7:02 PM, lwbaum wrote:

    Thanks for the interesting list. If the absolute size of the economy is not an entry requirement for this list, would some African countries make the list? Although relatively small, some seem to be growing quickly. If so, are there any investment opportunities there?

  • Report this Comment On December 18, 2013, at 8:13 AM, cmalek wrote:

    @deutschlandheute:

    Deutschland, deutschland uber alles! Nicht wahr?

  • Report this Comment On December 18, 2013, at 8:33 AM, cmalek wrote:

    The nice thing about Economy is that one can pick the numbers one wants and massage them and spin them until the desired outcome is shown. Economy cannot be analyzed in absolute terms like math or physics. In economy there are always "ifs", "ands", "buts", qualifying circumstances and exceptions.

    I agree with others that question your choices. These may be the five biggest economies in dollar terms but "biggest" in this case does not mean "best/strongest." I would definitly put Norway, Sweden, Denmark, UAE, even Canada ahead of your five choices.

  • Report this Comment On December 18, 2013, at 8:55 AM, TMFfinosus wrote:

    lwbaum,

    Personally I don't think any African countries are ready to make the top five, even after removing size as an absolute requirement. However, I cover the consumer goods sector and have written about Africa on a few occasions. If you live in Africa you already know that it is an emerging hot spot for both raw materials investment by sovereign states like China, and a potentially huge consumer market for multinationals.

    For investment opportunities, I like Kenya -- it's got a great combination of innovation, relatively good infrastucture, and a decent manufacturing base. Admire the whole concept of Kadogo although that has its downsides too. Nigeria obviously has a strong economy,and I think that South Africa may also be up and coming due to a renewed interest multinationals have in using it as a gateway to sub-Saharan countries. I'm planning to write more about Africa this year and hopefully by next year I'll be more up to speed on this dynamic continent!

    I assume you live in Africa? What is your opinion -- which would you say are the leading economies? I'm interested to hear your thoughts.

    Best,

    Asit

  • Report this Comment On December 18, 2013, at 9:00 AM, TMFfinosus wrote:

    cmalek,

    The countries you and chairmanwow mention should probably be on a "best" list and not a "strongest" list based on my critera. Again, remove size and influence on the global economy and I think each of yours are good choices. What about Singapore and Mexico then? And even if you remove size, why *not* Germany?

    Thanks for commenting,

    Asit

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