Tag: #southkorea

ICAEW chart of the week: Gold

With President Trump planning to visit Fort Knox to check up on the US government’s gold reserves, my chart for ICAEW this week looks at just how much gold is owned by governments around the world.

According to the latest statistics from the World Gold Council, sourced principally from the International Monetary Fund (IMF), governments and international financial institutions around the world own 35,864 tonnes of gold. Much of this gold sits in the Bank of England, Fort Knox and in central bank vaults around the world.

At a price of around £74 per gram, the total value of ‘government gold’ adds up to somewhere in the region of £2.7trn. This is estimated to be around one-sixth of the total above-ground stock of gold in the world.

While the US is the largest individual holder of official gold reserves with 8,133 tonnes of gold worth around £600bn, the 27 countries of the EU and the European Central Bank collectively own a total of 11,719 tonnes of gold worth approximately £870bn. This includes Germany with 3,352 tonnes, Italy 2,452 tonnes, France 2,437 tonnes, Netherlands 615 tonnes, the European Central Bank 507 tonnes, Poland 448 tonnes, Portugal 383 tonnes, Spain 282 tonnes, Austria 280 tonnes, Belgium 227 tonnes, Sweden 126 tonnes, Greece 115 tonnes, Hungary 110 tonnes, Romania 104 tonnes and other EU member states with 281 tonnes.

The next biggest holder of gold is the IMF with 2,814 tonnes (worth around £210bn), followed by Russia with 2,336 tonnes (£175bn), China 2,280 tonnes (£170bn), Switzerland 1,040 tonnes (£77bn), India 876 tonnes (£65bn), Japan 846 tonnes (£63bn), Türkiye 615 tonnes (£46bn), Taiwan 424 tonnes (£31bn), Uzbekistan 383 tonnes (£28bn), Saudi Arabia 323 tonnes (£24bn), the UK 310 tonnes (£23bn), Lebanon 287 tonnes (£21bn) and Kazakhstan 284 tonnes (£21bn).

The total for other countries adds up to 3,194 tonnes worth, or around £235bn or so, including Thailand 235 tonnes, Singapore 220 tonnes, Algeria 174 tonnes, Iraq 163 tonnes, Venezuela 161 tonnes, Libya 147 tonnes, Brazil 130 tonnes, Philippines 130 tonnes, Egypt 127 tonnes, South Africa 125 tonnes, Mexico 120 tonnes, Qatar 111 tonnes, South Korea 104 tonnes and the Bank for International Settlements 102 tonnes. 

While the level of official gold holdings is partly driven by the economic size of the countries concerned, it also depends on their reserve strategies, with US, German, French and Italian gold holdings making up around 75%, 74%, 72% and 71% of their official reserves respectively, in contrast with 6%, 9%, 11% and 15% for China, Switzerland, India and the UK, for example. 

President Trump’s plan to visit Fort Knox to personally inspect his nation’s gold holdings reflects one of the benefits of investing in a physical commodity such as gold – you can count gold bars, weigh them and check their purity, as well as admire its shiny quality. He may have a less satisfying experience in verifying any future strategic crypto-currency reserve, where entries in a ledger are somewhat more ephemeral.

This chart was originally published by ICAEW.


ICAEW chart of the week: UN budget contributions 2025

My chart for ICAEW this week looks at the assessed contributions of member states to the United Nations Regular Budget for 2025.

Pie chart showing proportion of contribution to the UN regular budget. EU & EFTA nations 24.0%, USA 22.0%, China 20.0%, Commonwealth nations 11.6%, Japan and South Korea: 9.3%, Latin American nations 4.4%, Middle East nations 4.3%, Russia 2.1%, Rest of the world 2.3%. 14 Feb 2025. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: United Nations, 'Regular Budget 2025 assessed contribution percentages'.

The United Nations is funded through a mix of assessed contributions from member states, voluntary contributions from both member states and others, and revenue generated from operations.

In 2023, total revenue for all UN entities comprised $67.6bn, of which $13.8bn was from assessed contributions, $46.8bn from voluntary contributions ($41.0bn earmarked and $5.8bn non-earmarked), and $7.0bn in revenue from operations.

Of the $13.8bn in assessed contributions from member states, $3.3bn in 2023 was for the core activities of the UN itself and our chart this week illustrates the assessed contribution percentages for 2025 for the $3.4bn UN Regular Budget set for 2025.

This highlights how European Union (EU) and European Free Trade Area (EFTA) nations have been assessed to pay 24.0% of the core budget in 2025, followed by the USA (22.0%), China (20.0%), Commonwealth nations (11.6%), Japan and South Korea (9.3%), Latin American nations (4.4%), Middle East nations (4.3%), Russia (2.1%), and the rest of the world (2.3%).

EU and EFTA national contributions are led by Germany (5.7%), France (3.9%), Italy (2.8%), Spain (1.9%), Netherlands (1.3%), Switzerland (1.0%), Poland (0.8%), Sweden (0.8%), Belgium (0.8%), Norway (0.7%), Austria (0.6%), Denmark (0.5%) and Ireland (0.5%). The remaining 18 EU and EFTA members (and three microstates) are expected to contribute a further 2.7% in 2025.

Of the Commonwealth nations, the UK (4.0%), Canada (2.5%), Australia (2.0%), India (1.1%) and Singapore (0.5%) contributed the most, with the remaining 49 members not including Cyprus and Malta (who are included in the EU in this chart) contributing a further 1.5%.

Japan (6.9%) and Korea (2.4%) are assessed to contribute 9.3% between them, while Latin American nations are down to contribute 4.4%, led by Brazil (1.4%), Mexico (1.1%) and Argentina (0.5%) with 1.4% coming from the rest.

Middle East countries are expected to contribute 4.3% between them, with Saudi Arabia (1.2%), Türkiye (0.7%), Israel (0.6%) and UAE (0.6%) being the largest. Another 11 Middle Eastern nations are down to contribute a further 1.2%.

Russia has been assessed to contribute 2.1%, while countries in the rest of the world are expected to put in a further 2.3%, of which Indonesia (0.6%) is the only one to contribute more than half a percent of the total assessment, with the remaining 68 member states collectively contributing a further 1.7% in total.

The assessed contributions for UN agencies and other activities vary from the percentages shown in the chart as they depend on which countries participate in each agency or activity and several other factors. For example, the US has been assessed to pay 26.2% of the UN peacekeeping budget in 2025 (higher than their 22% regular budget contribution), although the US is expected to pay only 25% because of a cap of 25% set by Congress. The UK and France are expected to pay 4.7% and 4.6% respectively (higher than their 4.0% and 3.9% regular budget contributions), while China has been assessed to pay 18.7% (lower than its 20.0% regular budget contribution).

Another example is the World Trade Organisation (WTO) where the US and China are assessed to contribute 11.4% and 11.2% respectively and most other nations contribute a larger share.

One big question for the UN in 2025 will be the extent to which the new US administration reduces the amount it pays to the UN compared with previous years. The total paid by the US was $13bn in 2023, comprising $3.2bn in assessed contributions and $9.7bn in voluntary contributions. 

In theory, if the US leaves a UN agency, such as already announced departures from the World Health Organisation and the UN Human Rights Council, then the assessed contributions for the remaining members can be increased to compensate. 

The White House has also announced that it is reviewing its membership of the UN Educational, Scientific and Cultural Organisation and that it will withhold a proportionate share of its regular budget contribution that goes towards the UN Relief and Works Agency for Palestinian Refugees in the Near East.

A bigger question will be the extent to which the US cuts its voluntary contributions to UN programmes. A substantial proportion of these voluntary contributions have traditionally come through the US Agency for International Development, where payments have recently been suspended.

This chart was originally published by ICAEW.

ICAEW chart of the week: IMF Fiscal Monitor

Our chart this week finds that the UK is ranking highly in the IMF’s latest five-year forecasts for general government net debt.

Bar chart General government net debt/GDP: 2029 forecast Emerging and developing economies (green bars) World (purple bar) Advanced economies (blue bar) UK (red bar) Kazakhstan (green) 8% Canada (blue) 13% Saudi Arabia (green) 22% Iran (green) 23% Australia (blue) 24% South Korea (blue) 29% Türkiye (green) 30% Indonesia (green) 37% Germany (blue) 43% Netherlands (blue) 43% Nigeria (green) 47% Mexico (green) 51% Poland (green) 55% Egypt (green) 56% Pakistan (green) 61% Brazil (green) 70% World (purple) 79% South Africa (green) 84% Spain (blue) 92% UK (red) 98% France (blue) 107% US (blue) 108% Italy (blue) 136% Japan (blue) 153% 18 Apr 2024. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: IMF Fiscal Monitor: 17 Apr 2024. ©️ ICAEW 2024

The International Money Fund (IMF) released its latest IMF Fiscal Monitor on 17 April 2024, highlighting how public debts and deficits are higher than before the pandemic and public debts are expected to remain high. The IMF says: “Amid mounting debt, now is the time to bring back sustainable public finances”, commenting that as prospects for a global economic soft landing have improved, it is time for action to bring government finances back under control. 

Our chart this week illustrates how the UK is one of the ‘leading’ nations in government borrowing, with general government net debt projected by the IMF to reach 98% of GDP by 2029, compared with 92.5% in 2023. (Note: general government net debt is different to the public sector net debt measure used in the UK public finances – the latter includes the Bank of England and other public corporations.)

The chart illustrates how the major countries with the largest debt burdens tend to be advanced economies, with Spain (92% of GDP), the UK (98%), France (107%), US (108%), Italy (136%) and Japan (153%) having debt levels close to, or exceeding, the sizes of their economies.

Some countries are in much better fiscal positions, with Germany expected to bring its general government net debt down to 43% of GDP by 2029, while the Netherlands (43%), South Korea (29%), Australia (24%) and Canada (13%) also have relatively low levels of public debt compared with other advanced economies.

Emerging market ‘middle-income’ and ‘low-income’ developing countries often have much lower levels of public debt than advanced countries, often simply because it is more difficult for them to borrow to the same extent as well as not having the same scale of welfare provision as richer countries to finance. Examples include Kazakhstan (projected to have a general government debt of 8% of GDP in 2029), Saudi Arabia (22%), Iran (23%), Türkiye (30%) and Indonesia (37%). However, that does not stop some emerging and developing countries borrowing more, such as Nigeria (47%), Mexico (51%), Poland (55%), Egypt (56%), Pakistan (61%), Brazil (70%) and South Africa (84%).

Not shown in the chart are China and India for which no net debt numbers are available. The IMF projects them to have general government gross debt in 2029 of 110% and 78% of GDP respectively, indicating how their public debts have grown substantially in recent years. However, without knowing their levels of cash holdings it is less clear where they stand in the rankings.

Also not shown is Norway, the only country with negative general government net debt reported by the IMF. Norway’s general government net cash is projected to reach 139% of GDP in 2029, up from 99% in 2023.

As with all metrics, there are some issues in comparing the circumstances of individual countries. Many countries will also have investments, other public assets, or natural resource rights that are not netted off against debt, while many will also have other liabilities or financial commitments that aren’t counted within debt. For example, the UK has significant liabilities for unfunded public sector pensions as well as even larger financial commitments to the state pension, either of which, if included, would move the UK above the US in the rankings.

The IMF believes that as the world recovers from the pandemic and inflation is brought under control, it is important for countries to start tackling the deficits in the public finances and start bringing down the level of public debt. 

This may be difficult for countries such as the UK where significant pressures on the public finances mean public debt is expected to increase over the medium term rather than fall.

This chart was originally published by ICAEW.

ICAEW chart of the week: IMF World Economic Outlook Update

My chart for ICAEW this week illustrates how countries rank in the IMF’s latest forecasts for economic growth over 2024 and 2025.

IMF World Economic Outlook Update ICAEW chart of the week (Horizontal bar chart) Legend: Emerging markets and developing economies (green) World (purple) Advanced economies (blue) UK (red) Projected annualised real GDP growth 2024 and 2025 Bars in green except where noted. India: +6.5% Philippines: +6.0% Indonesia: +5.0% Kazakhstan: +4.4% China: +4.3% Malaysia: +4.3% Saudi Arabia: +4.3% Egypt: +3.8% Iran: +3.4% Thailand: +3.2% Türkiye: +3.1% World Output: +3.1% (purple) Nigeria: +3.0% Poland: +3.0% Pakistan: +2.7% World Growth: +2.6% (purple) South Korea: +2.3% (blue) Mexico: +2.1% United States: +1.9% (blue) Canada: +1.8% (blue) Russia: +1.8% Brazil: +1.8% Spain: +1.8% (blue) Australia: +1.7% (blue) France: +1.3% (blue) South Africa: +1.1% United Kingdom: +1.1% (red) Germany: +1.0% (blue) Argentina: +1.0% Netherlands: +1.0% (blue) Italy: +0.9% (blue) Japan: +0.8% (blue) 8 Feb 2024. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: IMF World Economic Outlook Update, 30 Jan 2024. (c) ICAEW 2024

Each January, the International Money Fund (IMF) traditionally releases an update to its World Economic Outlook forecasts for the global economy. This year it says that it expects the global economy to grow by an average of 2.6% over the course of 2024 and 2025 at market exchange rates, or by 3.1% when using the economists-preferred method of converting currencies at purchasing power parity (PPP).

The chart shows how the 30 countries tracked by the IMF fit between emerging market and developing economies, most of which are growing faster than the global averages, and advanced economies, which tend to grow less quickly. 

The biggest drivers of the global forecast are the US, China and the EU, with both the US and China expected by the IMF to grow less strongly on average over the next two years than in 2023. This contrasts with an improvement over 2023 (which involved a shrinking economy in Germany) by the advanced national economies in the EU over the next two years – apart from Spain, which is expected to fall back from a strong recovery in 2023. 

Growth in emerging and developing countries is expected to average 4.1% over the two years, led by India (now the world’s fifth largest national economy after the US, China, Germany and Japan), followed by the Philippines, Indonesia, Kazakhstan growing faster than China, followed by Malaysia, Saudi Arabia, Egypt, Iran, Thailand and Türkiye. 

Nigeria, Poland and Pakistan are expected to grow slightly less than world economic output, followed by Mexico. 

Russia, Brazil and South Africa are expected to grow less strongly, while Argentina is expected to grow the least, with a forecast contraction in 2024 expected to be followed by a strong recovery in 2025.

The strongest-growing of the advanced economies in the IMF analysis continues to be South Korea, followed by the US, Canada, Spain, Australia, France, the UK, Germany, the Netherlands and Italy, with Japan expected to have the lowest average growth. Overall, the advanced economies are expected to grow by an average of 1.6% over the next two years.

For the UK, forecast average growth of 1.0% over the next two years is expected to be faster than the 0.5% estimated for 2023, but at 0.6% in 2024 and 1.6% in 2025 we may not feel that much better off in the current year.

Of course, forecasts are forecasts, which means they are almost certainly wrong. However, they do provide some insight into the state of the world economy and how it appears to be recovering the pandemic.

For further information, read the IMF World Economic Outlook Update.

More data

Not shown in the chart are the estimate for 2023 and the breakdown in 2024 and 2025, so for those who are interested, the forecast percentage growth numbers are as follows:

Emerging market and developing countries:

CountryAverage over
2024 and 2025		2023
Estimate		2024
Forecast		2025
Forecast
India6.5%6.7%6.5%6.5%
Philippines6.0%5.3%6.0%6.1%
Indonesia5.0%5.0%5.0%5.0%
Kazakhstan4.4%4.8%3.1%5.7%
China4.3%5.2%4.6%4.1%
Malaysia4.3%4.0%4.3%4.4%
Saudi Arabia4.1%-1.1%2.7%5.5%
Egypt3.8%3.8%3.0%4.7%
Iran3.4%5.4%3.7%3.2%
Thailand3.2%2.5%4.4%2.0%
Türkiye3.1%4.0%3.1%3.2%
Nigeria3.0%2.8%3.0%3.1%
Poland3.0%0.6%2.8%3.2%
Pakistan2.7%-0.2%2.0%3.5%
Mexico2.1%3.4%2.7%1.5%
Russia1.8%3.0%2.6%1.1%
Brazil1.8%3.0%2.6%1.1%
South Africa1.1%0.6%1.0%1.3%
Argentina1.0%-1.1%-2.8%5.0%

Advanced economies (including the UK): 

CountryAverage over
2024 and 2025		2023
Estimate		2024
Forecast		2025
Forecast
South Korea2.3%1.4%2.3%2.3%
USA1.9%2.5%2.1%1.7%
Canada1.8%1.1%1.4%2.3%
Spain1.8%1.1%1.4%2.3%
Australia1.7%1.8%1.4%2.1%
France1.3%0.8%1.0%1.7%
UK1.1%0.5%0.6%1.6%
Germany1.0%-0.3%0.5%1.6%
Netherlands1.0%0.2%0.7%1.3%
Italy0.9%0.7%0.7%1.1%
Japan0.8%1.9%0.9%0.8%

This chart was originally published by ICAEW.

ICAEW chart of the week: South Korea

My chart this week looks at the economic success story of South Korea over the last 30 years or so, using Japan as a comparator.

Line chart showing GDP per capita in current US$ between 1990 and 2023. Japan $2,158 in 1990, steady up to 1995 then zigzags ups and down and up and down and up to a peak in 2012 before falling to 2015 then up then flattish then down and then up to $2,949 in 2023. South Korea $551 in 1990, steady up to 1996, then down to 1998 then up then down then steady up to 2007, then down to 2009, then zig zag up to 2021, then down, then up to $2,783 in 2023.

The news that South Korea, to align with most of the rest of the world, is cutting the age of its citizens by a year or two – it used to deem a baby one year old at birth, and add a year on 1 January – prompted us to take a look at this peninsula nation and its amazing economic success story.

As my chart this week illustrates, GDP per capita in 1990 in South Korea was $551 per month in then current US$, approximately one quarter of its neighbour Japan’s GDP per capita per month at that time of $2,158

South Korea has seen its economy grow pretty strongly over the last three decades to reach a forecast GDP of $2,783 per person per month for the current year according to the International Monetary Fund (IMF). This is only a little below the economic activity of $2,949 per person per month anticipated to be generated by Japan in 2023. 

South Korea has made steady economic progress since 1990. Outside of recessions and pandemics there have been continual improvements in economic activity and in living standards, resulting in the country moving from the developing nation category to an advanced economy.

This compares with the economic performance of neighbouring Japan, which has been on an economic rollercoaster since the end of the economic boom in the mid-1990s. While a strong currency in the run-up to the global financial crisis boosted the size of its economy in US dollar terms, Japan has subsequently underperformed as its ageing population and lack of immigration has caused its economy to slow and the Yen to fall.

Not shown in the chart is the progress made in purchasing power parity (PPP) international dollars, the measure that economists prefer to use when comparing economic performance between countries as it takes account of differences in living costs. This would show a narrower difference in 1990, when South Korean and Japanese GDP per capita per month were 629 and 1,692 international dollars respectively, and would also show South Korea outgrowing Japan with GDP per capita per month in 2023 of 4,725 international dollars, compared with 4,317 international dollars for Japan.

Many South Koreans waking up on Wednesday 28 June 2023 will have been pretty happy to discover they are now a year or two younger than they were the day before. They may be less likely to reflect on the economic miracle that has taken their country from the depths of extreme poverty in the early 1950s, following the Korean War, to becoming the prosperous nation that South Korea is today. 

This chart was originally published by ICAEW.

ICAEW chart of the week: Inflation around the world

This week we look at how inflation is racing upwards across the world, with the UK reporting in April one of the highest rates of increase among developed countries.

Bar chart showing inflation rates by G20 country: Russia 17.8%, Nigeria 16.8%, Poland 12.4%, Brazil 12.1%, Netherlands 9.6%, UK 9.0%, Spain 8.3%, USA 8.3%, India 7.8%, Mexico 7.7%, German 7.4%, Canada 6.8%, Italy 6.0%, South Africa 5.9%, France 4.8%, South Korea 4.8%, Indonesia 3.5%, Switzerland 2.5%, Japan 2.4%, Saudia Arabia 2.3%, China 2.1%.

Inflation has increased rapidly over the last year as the world has emerged from the pandemic. A recovery in demand combined with constraints in supply and transportation has driven prices, with myriad factors at play. These include the effects of lockdowns in China (the world’s largest supplier of goods), the devastation caused by the Russian invasion in Ukraine (a major food exporter to Europe, the Middle East and Africa), and the economic sanctions imposed on Russia (one of the world’s largest suppliers of oil and gas).

As the chart shows, the UK currently has – at 9% – the highest reported rate of consumer price inflation in the G7, as measured by the annual change in the consumer prices index (CPI) between April 2021 and April 2022. This compares with 8.3% in the USA, 7.4% in Germany, 6.8% in Canada, 6.0% in Italy, 4.8% in France and 2.4% in Japan. 

The UK’s relatively higher rate partly reflects the big jump in energy prices in April from the rise in the domestic energy price cap, which contrasts with France, for example, where domestic energy price rises have been much lower (thanks in part to state subsidies). The UK inflation rate also hasn’t been helped by falls in the value of sterling, making imported goods and food more expensive.

Other countries shown in the chart include Russia at 17.8%, Nigeria at 16.8%, Poland at 12.4%, Brazil at 12.1%, Netherlands at 9.6%, Spain at 8.3%, India at 7.8%, Mexico at 7.7%, South Africa 5.9%, South Korea at 4.8%, Indonesia at 3.5%, Switzerland at 2.5%, Saudi Arabia at 2.3% and China at 2.1%. For most countries, the rate of inflation is substantially higher than it has been for many years, reflecting just how major a change there has been in a global economy that had become accustomed to relatively stable prices in recent years. 

This is not the case for every country, and the chart excludes three hyperinflationary countries that already had problems with inflation even before the pandemic, led by Venezuela with an inflation rate of 222.3% in April, Turkey with a rate of 70%, and Argentina at 58%.

Policymakers have been alarmed at the prospect of an inflationary cycle as higher prices start to drive higher wages, which in turn will drive even higher prices. For central banks that has meant increasing interest rates to try and dampen demand, while finance ministries have been looking to see how they can protect households from the effect of rising prices, particular on energy, whether that be by intervention to constrain prices, through temporary tax cuts, or through direct or indirect financial support to struggling households.

Here in the UK, both the Bank of England and HM Treasury have been calling for restraint in wage settlements as they seek to head off a further ramp-up in inflation. They hope that inflation will start to moderate later in the year as price rises in the last six months start to drop out of the year-on-year comparison and supply constraints start to ease, for example as oil and gas production is ramped up in the USA, the Middle East and elsewhere to replace Russia as an energy supplier, and as China emerges from its lockdowns.

Despite that, prices are likely to rise further, especially in October when the energy price cap is expected to increase by 40%, following a 54% rise in April. This is likely to force many to make difficult choices as household budgets come under increasing strain.

After all, inflation is much more than the rate of change in an arbitrary index; it has an impact in the real world of diminishing spending power and in eroding the value of savings. 

This chart was originally published by ICAEW.

ICAEW chart of the week: Government borrowing rates

Our first chart of 2022 highlights how the cost of government borrowing remains extremely low for most of the 21 largest economies in the world, despite the huge expansion in public debt driven by the pandemic.

Government 10-year bond yields: Germany -0.13%, Switzerland -0.07%, Netherlands 0.00%, Japan 0.09%, France 0.23%, Spain 0.60%, UK 1.08%, Italy 1.23%, Canada 1.59%, USA 1.65%, Australia 1.79%, South Korea 2.38%, China 2.82%, Poland 3.87%, Indonesia 6.38%, India 6.51%, Mexico 8.03%, Russia 8.38%, Brazil 10.73%, Turkey 24.21%.

Our chart of the week illustrates how borrowing costs are still at historically low rates for most of the 21 largest national economies in the world, with negative yields on 10-year government bonds on 5 January 2022 for Germany (-0.13%) and Switzerland (-0.07%), approximately zero for the Netherlands, and yields of sub-2.5% for Japan (0.09%), France (0.23%), Spain (0.60%), the UK (1.08%), Italy (1.23%), Canada (1.59%), the USA (1.65%), Australia (1.79%) and South Korea (2.38%).

This is despite the trillions added to public debt burdens across the world over the past couple of years as a consequence of the pandemic, including the $5trn added to US government debt since March 2020 (up from $17.6trn to $22.6trn owed to external parties) and the more than £500bn borrowed by the UK government (public sector net debt up from £1.8trn to £2.3trn) for example.

Yields in developing economies are higher, although China (2.82%) and Poland (3.87%) can borrow at much lower rates than Indonesia (6.38%), India (6.51%), Mexico (8.03%), Russia (8.37%) and Brazil (10.73%). The outlier is Turkey (24.21%), which is experiencing some difficult economic conditions at the moment. Data was not available for Saudi Arabia, the 19th or 20th largest economy in the world, which has net cash reserves.

With inflation higher than it has been for several years, real borrowing rates are negative for most developed countries, meaning that in theory it would make sense for most countries to continue to borrow as much as they can while funding is so cheap. However, in practice fiscal discipline appears to be reasserting itself, with Germany, for example, planning on returning to a fully balanced budget by the start of next year and the UK targeting a current budget surplus within three years.

For many policymakers, the concern is not so much about how easy it is to borrow today, but the prospect of higher interest rates multiplied by much higher levels of debt eating into spending budgets just as they are looking to invest to grow their economies over the rest of the decade. Despite that, with the pandemic still raging and an emerging cost of living crisis, there may well be a temptation to borrow ‘just one more time’ to support struggling households over what is likely to be a difficult start to 2022.

This chart was originally published by ICAEW.

ICAEW chart of the week: G7 economies

Our chart this week illustrates how in representing more than half of the world economy, decisions taken by the G7 can have a significant impact on the entire planet.

The G7 summit hasn’t formally started yet, but Group of Seven (G7) ministers and their guests have already started to meet ahead of the main event next month, albeit subject to quarantine restrictions.

The #icaewchartoftheweek illustrates how important this gathering is by highlighting how the seven major democratic nations and the European Union that together comprise the G7 represent more than half the global economy – and even more than that, once four invited guest nations are included.

Circular 'sunburst' chart showing G7 nations (USA, Japan, Germany, UK, France, Italy and Canada plus remaining EU nations), G7 guest nations (India, South Korea, Australia and a spoke for South Africa) and the rest of the world (China, Russia and Brazil followed by all the rest).

Overall, the G7 economies are forecast by the IMF to generate £35.9tn of economic activity in 2021 at current prices, 54% of forecast global GDP of £66.8tn. This comprises the economies of seven individual member nations: the USA (£16.3tn), Japan (£3.8tn), Germany (£3.1tn), the UK (£2.2tn), France (£2.1tn), Italy (£1.5tn) and Canada (£1.3tn), together with the 24 other EU member states (£5.6tn).

The guests invited to the 47th G7 summit in Cornwall are expected to generate a further £4.9tn or 7% of global GDP in 2021, bringing the total economic activity represented at the summit to £40.8tn or 61% of the total. They are India (£2.2tn), South Korea (£1.3tn), Australia (£1.2tn) and South Africa (£0.2tn).

Not represented at the G7 are China (£12.2tn), Russia (£1.2tn) and Brazil (£1.1tn) and around 160 other nations across the globe (£11.5tn in total).

The G7 summit presents an opportunity for the 11 national leaders and 2 EU representatives involved to shape the direction for much of the world, with discussions expected to range from saving the planet through to transparency in financial and non-financial reporting.

This chart was originally published by ICAEW.

ICAEW chart of the week: global military spending

19 March 2021: The UK’s Integrated Review is the inspiration for this week’s chart, illustrating the 20 countries around the world that spend the most on their militaries.

Chart showing global military spending in 2019 led by USA (£526bn) and China (£200bn) followed by 18 other countries - see text below the chart for details.

The UK Government launched its Integrated Review of Security, Defence, Development and Foreign Policy on 16 March 2021, setting out a vision for the UK’s place in the world following its departure from the European Union and in the context of increasing international tensions and emerging security threats.

At the core of the Integrated Review is security and defence, and ICAEW’s chart of the week illustrates one aspect of that by looking at military spending around the world. 

The chart shows spending by the top 20 countries, which together comprise in the order of £1.2tn of estimated total military spending of around £1.4tn to £1.5tn globally in 2019 – an almost textbook example of the 80:20 rule in action.

More than a third of the total spend is incurred by just one country – the USA – which spent in the order of £526bn in 2019 converted at current exchange rates. The next biggest were China and India at £200bn and £50bn respectively, although differences in purchasing power mean that they can afford many more soldiers, sailors and aircrew for the same amount of money. This is followed by Saudi Arabia (£45bn), Russia (£41bn), France (£38bn), the UK (£38bn), Germany (£38bn), Japan (£34bn), South Korea (£33bn), Australia (£21bn), Italy (£20bn), Canada (£17bn), Israel (£16bn), Brazil (£14bn), Spain (£13bn), Turkey (£11bn), the Netherlands (£9bn), Iran (£9bn) and Poland (£9bn).

Exchange rates affect the relative orders of many countries in the list, for example between Russia, France, the UK and Germany which can move up or down according to movements in their currencies, while there are a number of caveats over the estimates used given the different structures of armed forces around the world and a lack of transparency in what is included or excluded in defence budgets in many cases.

In addition, the use of in-year military spending does not necessarily translate directly into military strength. Military capabilities built up over many years or in some cases (such as the UK) over many centuries need to be taken into account, as do differing levels of technological development and spending on intelligence services, counter-terrorism and other aspects of security. Despite these various caveats, estimated military spending still provides a useful proxy in understanding the global security landscape and in particular highlights the UK’s position as a major second-tier military power – in the top 10 countries around the world.

Global Britain in a Competitive Age: the Integrated Review of Security, Defence, Development and Foreign Policy sets out some ambitious objectives for security and defence, which it summarises as follows: “Our diplomatic service, armed forces and security and intelligence agencies will be the most innovative and effective for their size in the world, able to keep our citizens safe at home and support our allies and partners globally. They will be characterised by agility, speed of action and digital integration – with a greater emphasis on engaging, training and assisting others. We will remain a nuclear-armed power with global reach and integrated military capabilities across all five operational domains. We will have a dynamic space programme and will be one of the world’s leading democratic cyber powers. Our diplomacy will be underwritten by the credibility of our deterrent and our ability to project power.”

The estimates of military spending used in the chart were taken from the Stockholm International Peace Research Institute (SIPRI)’s Military Expenditure Database, updated to current exchange rates.

This chart was originally published by ICAEW.