Forecasting world output: the rising importance of emerging Asia

The rapid growth of the emerging markets and of China in particu-lar changed the economic landscape: the world trade share of emerging Asia grew from about 13% in 1990 to almost 23% in 2008, their aggregate GDP now accounts for more than 25% of world output, while it was less than 12% in 1990. In this paper we focus on the consequences for the assessment of the global outlook and the specification of forecasting equations. Our main results are that: (i) the rise of emerging countries induced a sharp change in the correlation of growth rates among main economic areas; (ii) this is clearly detectable also in forecasting equations as a structural break occurring in the nineties; (iii) hence, inferences on global developments based solely on the industrialized countries are highly unreliable; (iv) the otherwise cumbersome task of monitoring many – and little known – countries can be tackled resorting to very simple bridge models (BM); (v) BM performance is in line with that of most widely quoted predictions (WEO, Consensus) both before and during the recent crisis; (vi) for some emerging economies, BM would have even provided better forecasts during the recent crisis.