In this chart, we visualize the world’s GDP using data from the IMF, showcasing the biggest economies and the share of global economic activity that they make up.
The GDP Heavyweights
The global economy can be thought of as a pie, with the size of each slice representing the share of global GDP contributed by each country. Currently, the largest slices of the pie are held by the United States, China, Japan, Germany, and India, which together account for more than half of global GDP. Here’s a look at every country’s share of the world’s $101.6 trillion economy: Just five countries make up more than half of the world’s entire GDP in 2022: the U.S., China, Japan, India, and Germany. Interestingly, India replaced the UK this year as a top five economy. Adding on another five countries (the top 10) makes up 66% of the global economy, and the top 25 countries comprise 84% of global GDP.
The World’s Smallest Economies
The rest of the world — the remaining 167 nations — make up 16% of global GDP. Many of the smallest economies are islands located in Oceania. Here’s a look at the 20 smallest economies in the world: Tuvalu has the smallest GDP of any country at just $64 million. Tuvalu is one of a dozen nations with a GDP of less than one billion dollars.
The Global Economy in 2023
Heading into 2023, there is much economic uncertainty. Many experts are anticipating a brief recession, although opinions differ on the definition of “brief”. Some experts believe that China will buck the trend of economic downturn. If this prediction comes true, the country could own an even larger slice of the global GDP pie in the near future. Source: IMF (International Monetary Fund) Data note: Due to conflict and other issues, some countries are not included in this data set (e.g. Ukraine, Syria, Afghanistan). Major sources for GDP data differ widely on the size of Iran’s economy. It’s worth noting that this data from IMF ranks Iran’s GDP much higher than World Bank or the UN. on Last year, stock and bond returns tumbled after the Federal Reserve hiked interest rates at the fastest speed in 40 years. It was the first time in decades that both asset classes posted negative annual investment returns in tandem. Over four decades, this has happened 2.4% of the time across any 12-month rolling period. To look at how various stock and bond asset allocations have performed over history—and their broader correlations—the above graphic charts their best, worst, and average returns, using data from Vanguard.
How Has Asset Allocation Impacted Returns?
Based on data between 1926 and 2019, the table below looks at the spectrum of market returns of different asset allocations:
We can see that a portfolio made entirely of stocks returned 10.3% on average, the highest across all asset allocations. Of course, this came with wider return variance, hitting an annual low of -43% and a high of 54%.
A traditional 60/40 portfolio—which has lost its luster in recent years as low interest rates have led to lower bond returns—saw an average historical return of 8.8%. As interest rates have climbed in recent years, this may widen its appeal once again as bond returns may rise.
Meanwhile, a 100% bond portfolio averaged 5.3% in annual returns over the period. Bonds typically serve as a hedge against portfolio losses thanks to their typically negative historical correlation to stocks.
A Closer Look at Historical Correlations
To understand how 2022 was an outlier in terms of asset correlations we can look at the graphic below:
The last time stocks and bonds moved together in a negative direction was in 1969. At the time, inflation was accelerating and the Fed was hiking interest rates to cool rising costs. In fact, historically, when inflation surges, stocks and bonds have often moved in similar directions. Underscoring this divergence is real interest rate volatility. When real interest rates are a driving force in the market, as we have seen in the last year, it hurts both stock and bond returns. This is because higher interest rates can reduce the future cash flows of these investments. Adding another layer is the level of risk appetite among investors. When the economic outlook is uncertain and interest rate volatility is high, investors are more likely to take risk off their portfolios and demand higher returns for taking on higher risk. This can push down equity and bond prices. On the other hand, if the economic outlook is positive, investors may be willing to take on more risk, in turn potentially boosting equity prices.
Current Investment Returns in Context
Today, financial markets are seeing sharp swings as the ripple effects of higher interest rates are sinking in. For investors, historical data provides insight on long-term asset allocation trends. Over the last century, cycles of high interest rates have come and gone. Both equity and bond investment returns have been resilient for investors who stay the course.
