Who’s going to be the next world’s economic power? Here’s what this famed economist is now saying — and one possible surprise

Thursday’s dramatic rise doesn’t necessarily indicate that the stock market is about to bottom, but it does confirm that investors are so pessimistic that there isn’t much of a hurdle to reverse things. It’s one way to look at what’s at stake in this week’s earnings from companies like Netflix NFLX.
-1.08%,
Tesla TSLA,
-7.55%
and AT&T T,
-0.86%.

But there are questions for now and questions for later. A new research paper being circulated by the National Bureau of Economic Research poses an intriguing question – which region will dominate the global economy? One of the authors is Laurence Kotlikoff, a Boston University professor and fellow of the American Academy of Arts and Sciences, who in the 1970s designed the model economists use to track economies over time.

Using demographic data from the United Nations and tax data from the International Monetary Fund, they created the so-called Global Gaidar model, which was based on the name of the Russian institute of one of the co-authors. They focus on five variables – population growth, population aging, productivity catch-up, budgetary adjustment, and automation.

As of 2017, Western Europe and China each accounted for about 17% of global GDP, with the US accounting for 16%. By 2100, they expect a very different story when China and India become the world’s two largest economic hegemons, accounting for 27% and 16% of global GDP respectively, with the US and Western Europe accounting for about 12% each.

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The real surprise could be in sub-Saharan Africa, where it is vying with the US for the top spot in another scenario. That’s based on a study that expects catching-up labor productivity growth in China, India, Russia, Eastern Europe and the former Soviet Union to almost come to an end. While the authors describe this scenario as “unbelievable,” they also acknowledge that labor productivity growth in Western Europe, Northern Asia, Britain, Canada and other countries has lagged US growth over the past two decades after it had surpassed five decades after World War II. “Therefore, what seems implausible to us may be just the thing. The only constant in the record of relative economic growth is its inconsistency,” they say.

In a final scenario, if the catch-up growth rates observed between 1997 and 2017 continue into the future, India leads the way with nearly 34% of global GDP. In this scenario, China is number two at 22% while the US is down at 10%.

The study also suggests that there is an impending capital glut due to high savings rates in China, India and other aging regions. “This simulated capital deepening reduces our base model’s global interest rate dramatically — from 5.98% in 2017 to 1.18% in 2100. Importantly, at all three sets of catch-up growth rates, major capital deepening occurs,” they say. Regions like the US with low national savings rates will import capital, which means that even if they maintain or increase their share of world GDP, their share of GNI could fall.

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The markets

A big drop in UK bond yields TMBMKGB-30Y,
4.361%
helped set the stage for a surge in US stock futures with the Dow YM00,
+1.00%
Contract up almost 300 points. The yield of the 10-year US Treasury TMUBMUSD10Y,
3.944%
slipped to 3.95%.

The Buzz

New British Chancellor Jeremy Hunt said he would reverse almost all tax cuts previously decided by the UK government and also review the energy price guarantee after April.

Bank of America BAC,
+0.03%
was on Monday’s earnings release list, beating both earnings and sales estimates. Goldman Sachs GS,
-2.31%
is planning a major restructuring, according to the Wall Street Journal.

news corp NWS,
-1.97%
Shares rose in premarket trading as the company said it could reunite with Fox FOX,
-0.75%,
that fell into the premarket action. news corp is the parent company of MarketWatch, the publisher of this report.

The Hamm family of Continental Resources CLR,
-3.18%
Founder Harold Hamm is offering $74.28 for each outstanding share. The family already owns 83% of the oil producer’s shares. Also in the energy sector, BP BP,
-2.63%
buys renewable natural gas company Archaea Energy LFG,
-4.90%
for $4.1 billion including assumed debt.

The economic calendar includes the Empire State Manufacturing Index.

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The best of the web

American executives are in limbo after a US ban at Chinese microchip companies.

The co-founder of former President Trump’s media company, which is trying to merge with a SPAC DWAC,
-4.43%
has provided company announcements and documents to the Washington Post and the Securities and Exchange Commission. Meanwhile, rapper Kanye West is buying conservative social media site Parler.

Iranian security forces have everything to lose if protesters overthrow the government.

top ticker

Here the most active tickers were from 6 a.m. Eastern.

ticker

security name

TSLA,
-7.55%

Tesla

GME,
-3.64%

GameStop

AMC,
-0.66%

AMC entertainment

NEVER,
-8.06%

no

BBBy,
-4.27%

bed bath beyond

AAPL,
-3.22%

Apple

MONKEY,
-6.59%

AMC Entertainment preferred

CFMS,
-1.99%

Compliant

TWTR,
+0.22%

Twitter

AMZN,
-5.00%

Amazon.com

Random Reading

Here’s the colorful quote from Nike’s NKE,
-2.24%
Co-founder on why he’s donating so much to Oregon’s gubernatorial race.

Netflix’s The Crown is causing more controversy in the UK

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