In today’s speech, I want to highlight some of the key features of this highly integrated economic system and discuss some of the challenges it may pose in the future. In particular, I will discuss how the changing shape of the world economy affects the task of national monetary authorities, such as the MPC. In other words, how can economic policy-makers maintain stability when we are constantly in danger of being buffeted by powerful global economic forces? The rise of Asia and the changing shape of the world economy A key feature of the new global economy we now inhabit is the increasing economic strength of the Asia-Pacific region. Chart 2 shows that the top ten economies in this region – led by China, Japan and India – have already overtaken both the European Union and the United States in their share of world economic activity. This compares with the situation thirty years ago when these economies were collectively just half the size of the European economy, and about two-thirds the size of the United States. 2  BIS central bankers’ speeches  Chart 2 – The rise of Asia Percentage share of world GDP, at current market prices and exchange rates US  EU-27  40%  Asia-pacific G10 *  35% 30% 25% 20% 15% 10% 5% 0% 1980  1990  2000  2010  *: Includes Australia, China, India, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan Province of China and Thailand.
Source: ONS, IMF World Economic Outlook  BIS central bankers’ speeches  1  In the UK, the rate of growth which we have seen over the early stages of recovery has not been spectacular, but that is not unusual in the early period of a return to growth after a major economic downturn. It is also not surprising that there have been variations in growth across different sectors of the economy and that confidence still remains fragile in the business community and among consumers. It is normally only 2–3 years into the recovery phase of the economic cycle that perceptions of improving economic conditions begin to catch up with the reality of a return to growth. This strong correspondence between economic growth in the UK and elsewhere in the EU shown in Chart 1 should not be a great surprise. It reflects the close economic links which have grown up over the centuries and which have been reinforced by the development of the European Union and the Single European Market. But this close link between economic growth in the UK and elsewhere in Europe is an example of a much more general phenomenon. We now live in a highly integrated global economy. And economies which are very open to trade and investment – like the United Kingdom, and indeed Jersey – are strongly influenced by international economic trends. During my time on the MPC, the growth and inflation performance of the UK, and hence our monetary policy judgements, have been heavily driven by global developments.