The Global Economy’s “Metropolitan Moment”

By any measure, 2011 was a turbulent year for the global economy.

A series of shocks — the economic reverberations of the Arab Spring, the continuing eurozone crisis, a devastating earthquake in Japan, floods in Thailand, slowed growth in China, and downgrade in the United States — threatened a fragile recovery.

For many of the world’s leading metropolitan areas, however, it was a very good year.

In Shanghai, per capita income grew by nearly 10 percent in 2011. Ankara, Turkey, saw employment grow nearly 6 percent. Santiago, Chile posted at least 5% growth in income and employment.

For many emerging-market cities like these, 2011 was truly a “metropolitan moment.” Our new Global MetroMonitor, a study of economic growth in the world’s 200 largest metropolitan economies, reveals that nearly all of the fastest-growing metro areas last year were in developing regions of Asia, Latin America, and Eastern Europe.

The bottom-ranking metro areas on our economic performance index read like a who’s who of pre-recession housing bubble markets (Dublin, Seville, Madrid, Barcelona), other eurozone problem areas (Athens, Lisbon, Naples, Valencia), and weakly recovering U.S. regions (Sacramento, Richmond, Kansas City, Atlanta).

Experts typically think about the global economy along national or regional lines, or by acronyms (think BRICs and CIVETS). But our research shows that, whether growing or declining, metropolitan areas are the key economic organizing units for a global population that, according to the United Nations, recently reached majority-urban status. They combine the key industry clusters, critical infrastructure, and large numbers of specialized workers that enable innovation, fuel international trade, and generate economic growth.

That’s why these large metro economies stand out on the global stage. The 200 we examined, from Tokyo ($1.3 trillion GDP) down to Alexandria, Egypt ($10 billion GDP), together generate nearly half the world’s economic output, despite housing just one-seventh of its population. National economies like Denmark, Argentina, Israel, and South Korea largely indicate the direction of the major metropolitan economies (Copenhagen, Buenos Aires, Tel Aviv, Seoul) that generate a majority of their GDP. In every region, major metro areas punch above their weight in driving economic growth.

Even within nations, metro areas exhibited very different trajectories based on their industry specializations in 2011. In the United States, the millstone of California’s state fiscal crisis weighed heavily on the Sacramento economy (number 196 in our rankings), while rising oil prices and diversified business services buoyed Houston’s performance (number 19). In Germany, Stuttgart (number 31) jumped in our rankings last year due to a strong rebound in manufacturing, even as media, trade, and finance center Hamburg (number 123) struggled to regain its footing.

Metro areas also provide a critical window on the unevenness of the global recovery to date. Of the 42 developing metro economies we tracked, 36 had fully recovered from the downturn by 2011, or never experienced a recession in the first place. Most North American and Western European metro areas, by contrast, continued to claw back lost income and jobs during 2011, but remained short of their pre-recession peaks. One-quarter continued to lose ground on one or both measures last year.

More now than ever, this metropolitan focus can help rebalance the global economy and identify new sources of comparative advantage and growth.

For U.S. and European metro areas, the continued ascendance of emerging-market metro areas means that those cities should be viewed as sites for more than production alone. Per-capita income in several Asian and Latin American metro areas has doubled in the past 15 years. Developed-market leaders can position their metro areas for a more diverse set of export and inward investment relationships with those growing markets, as they shake off a prior economy oriented primarily toward consumption and purely local services (retail, housing, health care). Those relationships are equally important for developing metro leaders seeking to satisfy the demands of a growing urban middle class for higher-quality goods and services.

Macro issues have hardly receded from view, of course. The fates of the eurozone, China’s real estate market, and the health of the U.S. labor market will matter greatly for metro growth in 2012. Shocks yet unknown will roil the global economy and its major metro nodes this year.

But as fiscal austerity tightens the noose around central government budgets worldwide, local leaders have both the opportunity and the imperative to drive economic growth. Only by capitalizing on this metropolitan moment will we achieve a broad and sustained global recovery.