Measuring economic growth.

• Author: Jimenez Viviana
• Position: ECONOMIC OBSERVER

THE YEAR 2004 WAS A MILESTONE for the world economy, which grew by 5.1%--the fastest in nearly three decades. Output of goods and services increased from seven trillion dollars in 1950 to $56 trillion in 2004, while annual income per person grew from $2,835 to $8,753 during this time.

The U.S., which accounts for 21% of gross world product--the aggregated value of all final goods and services produced worldwide--continues to stimulate global economic expansion. As a result of productivity growth, reduced interest rates, a mounting fiscal deficit, and higher corporate investment, the U.S. increased output by 4.4%. The European Union, meanwhile, expanded at a rate of 2.5%, attributable to weak domestic demand.

In Asia, Japan's economy jumped by 2.6% as a result of decreased consumption, a decline in investment, and weaker exports. The newly industrialized Asian economies--Hong Kong, Singapore, Taiwan, and South Korea--went up 5.5%, up from 3.1% in 2003. South Asia as a whole, with 1,400,000,000 people, enlarged by 7.1%. Economic growth in India, buoyed by strong investment and industrial activity, remained robust, slowing only slightly, from 7.5% to 7.3%.

With booming economic activity, China sustained the remarkable 9.5% a year growth that it has averaged since 1980. The industrial sector remains the biggest contributor despite substantial government initiatives to cool down the economy in an effort to prevent a hard landing. Russia's economy amplified by 7.1% while the Ukraine's rose by a record 12.1% due to burgeoning demand from Russia and China and a favorable exchange rate.

Surging global demand led to an increase of 27% in world commodity prices. This had a positive impact on commodity-exporting countries such as Brazil and Mexico, whose economies expanded by 5.2% and 4.4%, respectively. Output in Latin America as a whole increased by 5.7%. Venezuela's economy alone grew at an unprecedented 17.3%, a strong recovery after an economic contraction of 7.7% in 2003, partly due to a two-month oil industry shutdown. Higher oil prices, a boost in consumer spending, and improved investment triggered Venezuela's impressive showing.

Although economic recovery has become broad-based, there still are concerns about high dependence on oil markets. This was the case in the Middle East where, despite the fragile security situation, higher oil prices boosted the regional economy by 5.5%. Output in sub-Saharan Africa rose 5.1%, the highest in almost a...