How big is Asia?

The FINANCIAL — China’s economy now exceeds that of the United States in purchasing power parity terms. Add in the rest of emerging Asia, and the region is now comfortably larger than the US and the eurozone combined. Even leaving out Japan and China, emerging Asia is close to topping America.

But that’s not necessarily the right measure to gauge a market’s importance to the world. International purchasing power is what matters, and that is best captured by looking at GDP in US dollars. That presents a rather different picture: the US is the largest economy, with 22 per cent of world GDP, substantially bigger than the eurozone’s 17 per cent and China’s 11 per cent.

That is not to dismiss the growing importance of Asia. Emerging Asia’s combined dollar-GDP pulled equal to that of the US for the first time in 2014. Moreover, the region has dramatically increased its share of the global economic pie in recent decades. In 2000, the US economy made up 31 per cent of world GDP and China a mere 4 per cent.

What matters is not simply the size of individual economies but also their growth rate. And while the US will add about USD450 billion to global output in 2015, based on HSBC’s forecasts, China’s contribution is projected to be roughly USD800 billion.

The rest of emerging Asia will likely add more than twice as much GDP as the eurozone. Taking the region as a whole, it will comfortably add more dollar-GDP in 2015 than the entire rest of the world put together.

But while incremental GDP is one thing, the true impact on the world economy is better measured by import demand. That’s hard to measure precisely. Intricate supply chains in Asia mean import data doesn’t properly align with local demand because goods may be purchased from abroad, processed and subsequently exported.

But even halving Asia’s projected import demand to allow for such re-exports, China will be well ahead of America in 2015 and have almost double the eurozone’s imports. For emerging Asia as a whole, incremental import demand will likely be equivalent to twice the US plus the eurozone.

However, a sharper-than-expected slowdown in China would be a big problem for everyone. We estimate that roughly a half percentage point acceleration in US growth would offset the decline in import demand if China slows by a full point.

That seems just about manageable. However, if we include all of emerging Asia, the import sensitivities to growth are roughly the same. So Asia is big, very big. But while that was great for the world when the West stumbled, it is less so now as the East begins to look wobbly, too.