This report updates earlier projections of potential growth in GDP in leading economies over the period to 2050. These projections were updated in March 2008 and we have revisited them again in the aftermath of the global financial crisis, extended now to cover all G20 economies.
Our key conclusion is that the global financial crisis has further accelerated the shift in global economic power to the emerging economies.
Measured by GDP in purchasing power parity (PPP) terms, which adjusts for price level differences across countries, the largest E7 emerging economies seem likely to be bigger than the current G7 economies by 2020, and China seems likely to have overtaken the US by that date. India could also overtake
the US by 2050 on this PPP basis.
If instead we look at GDP at market exchange rates (MERs), which does not correct for price differences across economies but may be more relevant for practical business purposes, then the overtaking process is slower but equally inexorable. The Chinese economy would still be likely to be larger than that of the US before 2035 and the E7 would overtake the G7 before 2040. India would be clearly the third largest economy in the world by 2050, well ahead of Japan and not too far behind the US on this MER basis.
Return to historical norm
In many ways this renewed dominance of China and India, with their much larger populations, is a return to the historical norm prior to the Industrial Revolution of the late 18th and 19th centuries that caused a shift in global economic power to Western Europe and the US – this temporary shift in power is now going into reverse.
This changing world order poses both challenges and opportunities for businesses in the current advanced economies. On the one hand, competition from emerging market multinationals will increase steadily over time and the latter will move up the value chain in manufacturing and some services (including financial services given the weakness of the Western banking system after the crisis).
Great new opportunities
Says report author John Hawksworth, head of macroeconomics at PwC: “At the same time, rapid growth in consumer markets in the major emerging economies associated with a fast growing middle class will provide great new opportunities for Western companies that can establish themselves in these markets. These will be highly competitive, so this is not an easy option – it requires long term investment – but without it Western companies will increasingly be playing in the slow lane of history if they continue to focus on markets in North America and Western Europe.”
This applies not least to the UK, which currently sells only around 7% of its exports to the BRICs (even including Hong Kong as part of China), about the same as it exports to Ireland at present. If the UK is to achieve trend growth of more than about 2% in the long run, then it needs to find a way to break into these fast-growing emerging markets on a much larger scale than achieved so far.
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