2000 years of economic history in one chart

2,000 Years of Economic History in One Chart

Over 2,000 Years of Economic History in One Chart

All major powers compared by GDP from the year 1 AD

The Chart of the Week is a weekly Vis.Cap. feature on Fridays.

Long before the invention of modern day maps or gunpowder, the planet's major powers were already duking it out for economic and geopolitical supremacy.

Today's chart tells that story in the simplest terms possible. By showing the changing share of the global economy for each country from 1 AD until now, it compares economic productivity over a mind-boggling time period.

Originally published in a research letter by Michael Cembalest of JP Morgan, we've updated it based on the most recent data and projections from the IMF. If you like, you can still find the original chart (which goes to 2008) at The Atlantic. It's also worth noting that the original source for all the data up until 2008 is from the late Angus Maddison, a famous economic historian that published estimates on population, GDP, and other figures going back to Roman times.

A Major Caveat

If you looked at the chart in any depth, you probably noticed a big problem with it. The time periods between data points aren't equal – in fact, they are not close at all.

The first gap on the x-axis is 1,000 years and the second is 500 years. Then, as we get closer to modernity, the chart uses mostly 10 year intervals. Changing the scale like this is a big data visualization "no no", as rightly pointed out in a blog post by The Economist.

While we completely agree, we have a made an exception in this case. Why? Because getting good economic data from the early 20th century is already difficult enough – and so trying to find data in regular intervals before then seems like a fool's errand. Likewise, a stacked bar chart with different years also doesn't really do this story justice.

You can encounter similar historical data issues in Richest People of Human History graphic, and at the end of the day decided it was primarily for fun. Like today's chart, it has its share of imperfections – but ultimately, it provides a great amount of context and serves as a conversation starter.

Our Interpretation

Caveats aside, there are many stories that materialize from this simple chart. They include the colossal impact of the Industrial Revolution on the West, as well as the momentum behind the re-emergence of Asia.

But there's one other story that ties it all together: the exponential rate of human economic growth that occurred over the last century.

For thousands of years, economic progress was largely linear and linked to population growth. Without machines or technological innovations, one person could only produce so much with their time and resources.

More recently, innovations in technology and energy allowed the "hockey stick" effect to come into play. 

It happened in Western Europe and North America first, and now it's happening in other parts of the world. As this technological playing field evens, economies like China and India – traditionally some of the largest economies throughout history – are now making their big comeback. 

China's Congress Is Over, And So Is The Period Of "Coordinated Global Growth"

It is hardly a secret that thanks to nearly $4 trillion (at least) in credit creation in 2017 - more than the rest of the developed world combined - China has been the proverbial (and debt-funded) "growth" dynamo behind the recent period of "coordinated global growth." Unfortunately, much if not all of this was window dressing for the just concluded 19th Communist Party Congress, which in not so many words, made Xi Jinping into a de facto emperor with no apparent or otherwise heirs. 

The problem is that with the Congress now over, so is the period of coordinated global growth. Here's why.

As Citi writes, "China's Party Congress has concluded and Xi Jinping's position as President has been consolidated. Given there are no standing committee members in their 50s, it suggests there are no apparent heirs for Mr. Xi, opening the door for him to stay on beyond 2022. One of the key questions in the run up to the congress was that once power was consolidated, would China accelerate its economic reforms. We think this is unlikely but do expect a moderation of growth, with data momentum perhaps set to continue to slow at its current pace. Note how China's MCI tends to lead Citi's macro data index for China and our MCI is still tightening."

It gets worse.

As Capital Economics writes in its China Activity Monitor note this week, the firm's China Activity Proxy (CAP) suggests that growth in China slowed last month to the weakest pace in a year and with property sales cooling and officials continuing their efforts to rein in financial risks, Cap Econ thinks that looking ahead "the economy will slow further over the coming quarters."

Some more details from CapEco:

The CAP is our attempt to track the pace of growth in China without relying on the official GDP figures. It is based on a set of low-profile indicators chosen to reflect activity across a wide section of the economy. 

• The CAP suggests that, following a sharp rebound in 2016, the economy expanded at a pace not far short of that shown on the official GDP data in the last three quarters. On a monthly basis though, we estimate growth actually peaked in July at 6.6% y/y before slowing to 5.6% last month, the weakest pace in a year. Growth also edged down last month in seasonally adjusted 3m/3m annualised terms, to 5.9% from 6.1% in August. 
• The breakdown reveals that two of the CAP's five components were responsible for the latest slowdown. Passenger traffic growth fell in September to 1.6% y/y from 4.0% in August, hitting a six-month low. This may be due in part to distortions caused by the shift in timing of Mid-Autumn Festival from September last year to October this year. But even in seasonally-adjusted 3m/3m annualised terms, growth slowed from 4.0% to 3.5% last month.
• Growth in domestic freight volumes also slowed in September in both y/y and annualised 3m/3m terms, with the latter hitting a three-month low. 
• Property construction growth continued to rebound in September, reaching the fastest pace in almost three years despite the recent contraction in home sales. 

CapEco's ominous conclusion:

Looking ahead, we think growth will continue to slow over the coming quarters. The current props to growth appear shaky. With investment contracting in real terms, industrial output will probably soften over the months ahead. Property sales also look set to weaken further as the government's purchase curbs continue to expand. This will weigh on construction before long. More generally, with tighter monetary conditions weighing on credit growth, activity looks set to weaken further.

That the past 18 months of coordinated global growth will end in China, is quite symmetric: back in January 2016, as global markets were tumbling, aborting the Fed's plans to hike rates 4 times in 2016 and resulting in sharp economic slowdowns around the globe, it was the (still mysterious) Shanghai Accord that "saved" the world, and unleashed a burst of unprecedented, and coordinated, growth... which only cost China some $8 trillion in debt. 

It will only make sense that another major Chinese event will mark the top of this economic mini cycle, and lead to the next global downturn, not to mention spike in market volatility.