Global economic centre of gravity shifts, but even emerging economies face growth challenges, says PwC report

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By 2050:
- China, US, India to be three largest economies by far
- Indonesia, Nigeria and Vietnam could climb strongly
- Brazil could overtake Japan to be fourth largest economy
- Turkey could emerge as one of largest European economies

16th January, 2013 – The global financial crisis has accelerated the shift of the economic centre of gravity, with China, the US and India set to be the three major economies by 2050; but the emerging economies do face major challenges in their bid to sustain their recent strong growth.

These are just two findings from the latest World in 2050 report published by PwC’s macroeconomics team.

The original PwC ‘World in 2050’ study in 2006 covered the 17 largest economies: the G7 (France, Germany, Italy, Japan, the UK, the US and Canada) plus Spain, Australia and South Korea; and the E7 (Brazil, Russia, India, China, Indonesia, Mexico and Turkey. The extended 2013 study – titled World in 2050 The BRICs and Beyond: Prospects, challenges and opportunities - also includes Vietnam, Nigeria, South Africa, Malaysia, Poland, Saudi Arabia and Argentina.

The report concludes that the emerging economies are set to grow much faster than the G7 over the next four decades. Figures for average growth in GDP in purchasing power parity (PPP) terms (see note 1) show Nigeria leading the way over the period from 2012 to 2050, followed by Vietnam, India, Indonesia, Malaysia, China, Saudi Arabia and South Africa.

John Hawksworth, PwC Chief Economist and co-author of the report, comments:

"The global financial crisis has hit the G7 much harder than the E7 in the short term. And it has also caused downward revisions in the estimates of longer term trend growth in the G7 – particularly those economies in Europe and the US that had previously relied on excessive public and private borrowing to drive growth.”

This means that, in PPP terms, the E7 could overtake the G7 before 2020; and by 2050 China, the US and India could be by far the largest economies – with a big gap to Brazil in fourth place, ahead of Japan.

And by the same time, Russia, Mexico and Indonesia could be bigger than Germany or the UK; Turkey could overtake Italy; and Nigeria could rise up the league table, as could Vietnam and South Africa in the longer term.

Beyond the largest economies, Malaysia has considerable long-term growth potential, while Poland could continue to outpace its Western European neighbours for some decades to come.

The table below illustrates the changing league positions in world GDP at PPPs – selected countries are marked in bold to highlight notable changes in rankings over time.

Actual and projected top 20 economies ranked based on GDP in PPP terms

  2011 2030 2050
PPP
rank
Country GDP at PPP
(2011 US$bn)
Country Projected
GDP at PPP
(2011 US$bn)
Country Projected
GDP at PPP
(2011 US$bn)
1 US 15094 China 30634 China 53856
2 China 11347 US 23376 US 37998
3 India 4531 India 13716 India 34704
4 Japan 4381 Japan 5842 Brazil 8825
5 Germany 3221 Russia 5308 Japan 8065
6 Russia 3031 Brazil 4685 Russia 8013
7 Brazil 2305 Germany 4118 Mexico 7409
8 France 2303 Mexico 3662 Indonesia 6346
9 UK 2287 UK 3499 Germany 5822
10 Italy 1979 France 3427 France 5714
11 Mexico 1761 Indonesia 2912 UK 5598
12 Spain 1512 Turkey 2760 Turkey 5032
13 South Korea 1504 Italy 2629 Nigeria 3964
14 Canada 1398 Korea 2454 Italy 3867
15 Turkey 1243 Spain 2327 Spain 3612
16 Indonesia 1131 Canada 2148 Canada 3549
17 Australia 893 Saudi Arabia 1582 South Korea 3545
18 Poland 813 Australia 1535 Saudi Arabia 3090
19 Argentina 720 Poland 1415 Vietnam 2715
20 Saudi Arabia 686 Argentina 1407 Argentina 2620

Source: World Bank estimates for 2011, PwC estimates for 2030 and 2050

But what are the risks that could derail emerging market growth? The PwC report cites a number of potential sources of macroeconomic and political instability, such as:

  • High fiscal deficits in India and Brazil
  • Over-reliance on oil and gas revenues in Russia and Nigeria
  • Rising income inequality leading to social tensions in China and other fast-growing economies
  • Macroeconomic and financial instability in Vietnam.

The report also highlights the pressure on natural resources from rapid growth in emerging economies, including the increasing difficulty of keeping global warming to no more than 2˚C. While new unconventional energy sources such as shale gas were reducing fears of running out of fossil fuels, the dangers associated with more volatile global climate patterns only seem likely to increase over the next four decades based on the projections in the report.

John Hawksworth concludes:

“The shift in the global economic centre of gravity is clear; but there are still major challenges for the emerging economies to sustain their recent strong growth. At the same time, there are huge opportunities for Western companies in the emerging markets – but also great competitive challenges from fast-growing emerging market companies. Governments also face huge challenges, not least in relation to global warming as a result of this rapid pace of economic development.”

Ends

Notes:

1.There is no single right way to measure the relative size of emerging economies as compared to the established OECD economies. Depending on the purpose of the exercise, GDP at either market exchange rates or purchasing power parity rates (PPPs) may be the most appropriate measure. In general, GDP at PPPs is a better indicator of average living standards or volumes of outputs or inputs, while GDP at market exchange rates is a better measure of the size of markets for OECD exporters and investors operating in hard currencies at any given time.

2.A copy of the World in 2050 The BRICs and Beyond: Prospects, challenges and opportunities report can be found at http://www.pwc.com/world2050

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