The HS Dent model focuses on the effects of demographic trends on consumer spending, and thus the economy as a whole. This is based on the fact that domestic consumer spending is the bedrock of the economy. After all, the primary purpose of the economy is ultimately to satisfy the needs and wants of individuals in the most efficient way. Today, consumer spending accounts for a full 70% of American GDP, and most developed countries come relatively close to that mark.

But what if domestic consumption is not the driver of the economy? The economies of small countries are often very different from the more diversified economies larger countries. Some – such as Switzerland – are dominated by a small number of industries, in this case banking and healthcare. Likewise, many developing countries have commodity-based economies, like the oil-rich states of the Middle East.

A common problem among both smaller developed countries and developing countries of all sizes is a dependence on exports. While high levels of exports are certainly capable of generating wealth in a country, they unfortunately make the country’s economy extremely sensitive to events in other countries. For example, if the US goes into an extended downturn and begins to use less oil, the oil exporting countries of OPEC would suffer. In short, high exports make a country more vulnerable to global downturns and downturns in the economies of major trading partners.

In the case of imports, the situation is somewhat different. Generally, economists fret about the effects of excessive imports (inflation, currency depreciation, etc.), but we at HS Dent view this from a different angle.

Imports represent consumption of goods or services not produced at home, and hence, for countries that have higher imports than exports, domestic consumption will be higher than GDP suggests. Events that limit your access to imports – such as wars or trade restrictions – are certainly an annoyance for the consuming importer, but they are much worse for the producing exporters. Their livelihoods depend on your ability to consume.

All else equal, countries that depend less on exports and more on domestic consumption are going to fare better during a global economic downturn. Countries that import may actually benefit to an extent, as the prices of their imports may fall. Such countries can also choose to restrict imports to favor domestic industries and cushion the impacts of a slowdown, and nearly every country in history has done this at one point or another.

We at HS Dent believe that, despite the incredible growth of the developing world, the aging demographic trends of the developed countries of the West will cause a global recession. We see the best opportunities in countries with strong domestic demographic trends and a minimal dependence on exports, like India.

The following list evaluates every major country in the world, calculating exports, imports, and net exports (imports) as a percentage of GDP. All else equal, the lower the dependence on exports the better a country will fare during an economic slowdown. Countries that have low export ratios (like the US, Japan and India) will also correlate more closely with the Spending Wave projections we make at HS Dent.

Exports, Imports and GDP