TORONTO, March 25, 2008 — Long-term growth prospects for China, India and other so-called 'E7' economies (Brazil, Mexico, Russia, Indonesia and Turkey) remain upbeat. However according to a new report from PricewaterhouseCoopers (PwC) an additional 13 emerging economies also have the potential to grow significantly faster than the established OECD countries. This rapid growth creates both challenges and opportunities for Canada.
The report, The World in 2050: Beyond the BRICs: a broader look at emerging market growth prospects, suggests that China could overtake the US by 2025 to become the world's largest economy and will continue to grow to 130% of the size of the US economy by 2050. The Indian economy could grow to almost 90% of the size of the US economy by 2050. Brazil seems likely to overtake Japan by 2050 to move into fourth place, while Russia, Mexico and Indonesia all have the growth potential to surpass the economies of Germany or the UK by the middle of this century. The most impressive economic growth could be realized by Vietnam, with a potential growth rate of almost 10% per annum in real dollar terms. This rapid growth could propel the Vietnamese economy to around 70% of the size of the UK economy by 2050.
Interestingly, Nigeria has the long-term potential to overtake South Africa as the largest African economy by 2050. This assumes that non-oil based growth policies implemented in recent years are sustained in the long-run, something that may prove to be a challenge.
"As the economies of emerging nations grow, Canada's share of the global economy is projected to diminish," says Edward Mansfield, an associate partner with PwC's statistics and economics group. "To maintain our competitive position, Canadian businesses will have to differentiate through innovation and technological progress. This will require greater investments in education and capital equipment to promote the productivity gains necessary for economic growth. However, as a highly culturally diverse nation, Canada could be well positioned to capitalize on the growth of emerging markets due to well established cultural and economic links."
John Hawksworth, author of the report and head of macroeconomics at PwC, adds that:
"The rapid growth of the emerging economies does not mean the demise of the established OECD economies. In fact it should prove to be a boost for them through growing income from exports and overseas investments, even as the OECD share of world GDP declines."
Retailers should be winners by benefiting from lower cost imports into their OECD markets while also having the potential to set up new stores in the E7 countries. China, in particular, is likely to be the second largest consumer market in the world by 2020, while cities across the leading emerging markets from Shanghai to Mexico City will have rapidly growing middle class populations with the spending power to afford Western consumer goods and services.
"Non-US trade and investment, both inward and outward, will become even more important to the Canadian economy as demand from BRICs and emerging markets continues to grow. This represents an opportunity for Canada to diversify its trade flows," notes Mansfield.
Losers are likely to be mass market manufacturers due to increased Chinese competition. New lower cost competitors like Vietnam will also increasingly challenge China as the leader of low-cost manufacturing in the global economy, while China itself moves into higher technology areas just as Japan and South Korea did in earlier decades.
The downtrend in Canadian manufacturing is not likely to see much relief in coming years as emerging markets continue to present significant competitive pressures in the global goods market. Further, a higher standard of living in places like China and India may induce highly skilled workers to stay at home rather than relocate to Canada. This could exacerbate the already unfavourable labour force demographics in Canada, where lower population growth is expected to trim the potential growth rate of the economy to around 2.4%.
To download a copy of 'The World in 2050: Beyond the BRICs', visit www.pwc.com/world2050.
Table A: Projected relative size of economies in 2007 and 2050 (US = 100)
Table B: Projected real growth rates for expanded group of emerging market economies: 2007-50 (% per annum)
This new research uses the same methodology for projecting long-term economic growth rates as previous PricewaterhouseCoopers reports in the World in 2050 series in March 2006 (focusing on the E7 economies and the advanced economies shown in Table A) and September 2006 (focusing on the implications for global energy consumption, carbon emissions and climate change policy). But this new report updates the projections to take account of actual performance in 2006-7, the latest UN demographic projections to 2050 and other relevant new information. It also extends the analysis to 13 other emerging economies with the potential to be one of the largest 30 economies in the world by 2050. Together this 'PwC 30' group of economies accounts for around 85% of world economic output (GDP).
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