Savings in India, Germany, Japan, the US and China

By John Ross, Dong Nan and Li Hongke An earlier article noted that the US has been o vertaken as the world's greatest source of finance for investment (i.e. savings/capital) by China. This represents a major turning point in world economic history. This article adds data for three further major economies - Japan, Germany and India. The calculations are made in dollars at current exchange rates for the latest year for which annual data are available - i.e. 2008.(1) The results are shown in Figure 1. Figure 1

Analysing the results in detail, China's lead in generation of investible financ e flows from the combination of the large size of its economy, $4.399 trillion in 2008, and its high savings rate of around 54% of GDP. China's savings in 2008 were $2.381 trillion. Recent further upward revision of China's GDP data indicates that the savings figure given for China here is probably slightly conservative. (2) The position of the US as the world's second largest source of investible finance is determined exclusively by the large size of its economy. As is well known the US savings rate is extremely low. Contrary to some claims to the contrary in the media, the US savings rate has fallen further and not risen during the financial crisis. The calcula ted US savings rate in 2008 was 13.3% of GDP, and the measured rate 12.6%. US calculated savings were $1.926 trillion and measured savings $1.824 trillion. Japan, despite the well known severe problems of its economy in the last two decades, still occupies third place in terms of generation of capital due to the large size of its economy

and a relatively high, 26,7% of GDP, savings rate. Japan's generation of capital in 2008 was $1.310 trillion. In order to illustrate the drastic changes in the relative pos itions of China, the US, and Japan in terms of generation of capital Figure 2 shows the total savings in dollars for each country since 1975. As may be seen Japan temporarily overtook the US in the late 1980s and early 1990s before the collapse of its 'bub ble economy'. Total savings in Japan then fell precipitately and have never regained their 1995 level in absolute terms. This sharp fall in Japan's savings accompanied the well known stagnation of its economy. The extremely rapid rise of China to overtake both the US and Japan is evident. Figure 2

Turning to other states, Germany occupies fourth place in terms of generation of capital with a savings rate of 26.0% of GDP and savings of $0.946 trillion. Due to the rapid growth of its economy a calculation f or India is given. India's savings rate is high, 35.7% of GDP, but its total savings remain lower than that of other major countries due to its smaller economy - particularly when expressed at official exchange rates. India's total savings in 2008 were $48 2 billion. This means China's total savings, that is finance available for investment, were almost five times those of India in 2008. * * * This article originally appeared on the blog Key Trends in Globalisation on 09 January 2010. Notes
1. The US publishes data for measured total savings as part of its quarterly GDP data. Most countries do not. However savings are, by accounting definition, equal to gross domestic fixed capital formation, plus inventories, plus the balance of payments surplus/deficit. As data for these latter figures are published for all countries concerned it is a simple matter to

calculate savings. To ensure relative uniformity of sources in all cases data from the IMF's International Financial Statistics is used. Use of national sources of data yields figures differing in detail from the results here but in no case do these alter the qualitative picture outlined. Cross checking with countries for which measured savings data is published shows, as would be expected, minor differences between measured and calculated savings. This disparity, however, is not sufficient to alter the rankings or essential dimensions of savings given above. To illustrate this point the graph below shows measured and calculated savings rates for the US expressed as a percentage of GDP.

2. China's 2008 GDP has recently been revised upwards to $4,600 trillion. It is likely that this will show China's s avings to be above the level calculated here. However no breakdown of the new data which would allow a calculation of the savings rate has been published yet. Therefore the former, that is more conservative, figures are used here to avoid any suggestion of exaggeration. The difference will however almost certainly be marginal.

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