Latest PwC report projects that:
10 February 2015 – The global economic power shift away from the established advanced economies in North America, Western Europe and Japan will continue over the next 35 years – despite a projected slowdown in Chinese growth after around 2020.
This is one of the key findings from the latest report from PwC economists on The World in 2050: Will the shift in global economic power continue? This presents long-term projections of potential GDP growth up to 2050 for 32 of the largest economies in the world, covering 84% of total global GDP.
The report indicates that the world economy is projected to grow at an average of just over 3% per annum from 2014-50 – doubling in size by 2037 and nearly tripling by 2050. But there’s likely to be a slowdown in global growth after 2020, as the rate of expansion in China and some other major emerging economies moderates to a more sustainable long-term rate, and as working age population growth slows in many large economies.
John Hawksworth, PwC Chief Economist and co-author of the report, comments:
“There are different ways of comparing the size of economies, but we project that China will be the largest economy by 2030 on any measure. However, we also expect its growth rate to slow markedly after around 2020 as its population ages, its high investment rate runs into diminishing marginal returns and it needs to rely more on innovation than copying to boost productivity. Eventual reversion to the global average has been common for past high growth economies such as Japan and South Korea and we expect China to follow suit.
“India has the potential to sustain its higher growth rate for longer and become a $10 trillion economy by around 2020 in purchasing power (PPP) terms, or around 2035 at market exchange rates. But this relies on India making sustained progress on infrastructure investment, institutional reforms and boosting education levels across the whole population.”
Table 1 below sets out how PwC projects global GDP rankings will evolve (see Note 1 at the end of this release for more details).
The report also contains projections based on GDP at market exchange rates, without this relative price adjustment. On that basis, China is projected to overtake the US in around 2028, while India would clearly be the third largest economy in the world in 2050, but still some way behind the US.
Table 1: Projected global GDP rankings in PPP terms (at constant 2014 dollars)
|PPP rank||Country||GDP at PPPs
|Country||Projected GDP at PPPs
|Country||Projected GDP at PPPs
|2||United States||17,416||United States||25,451||India||42,205|
|10||United Kingdom||2,435||United Kingdom||3,586||Germany||6,338|
|12||Italy||2,066||Saudi Arabia||3,212||Saudi Arabia||5,488|
|13||South Korea||1,790||South Korea||2,818||France||5,207|
Source: IMF World Economic Outlook database (Oct 2014) for 2014 estimates, PwC projections for 2030 and 2050
Table 2 below sets out the average annual real GDP growth rates underlying these projected GDP rankings, splitting out the influence of population growth and average income growth per person:
Table 2: Projected average real GDP growth rates (% per annum, 2015-50)
|Average real GDP growth
|Average real GDP growth|
Source: PwC analysis based on UN population projections
Aside from China and India, other highlights from PwC’s projections in Tables 1 and 2 are:
PwC also estimates what its projections would mean for shares of global GDP at PPPs (assuming the smaller countries not covered in the model grow on average as a group at the same rate as the 32 large economies covered by the study) As Figure 1 below shows:
John Hawksworth comments:
“Europe needs to up its game if it not to be left behind by this historic shift of global economic power, which is moving us back to the kind of Asian-led world economy last seen before the Industrial Revolution. The US may hold up better, provided it can remain at the global technological frontier.”
Figure 1: Shifting global economic power: projected shares of world GDP in PPP terms
Source: PwC projections starting from IMF estimates for 2014
These projections assume, however, that emerging markets will follow broadly growth-friendly policies. In practice, not all may do so and therefore not all of these economies will fulfil the potential indicated by the PwC growth projections, although some could also exceed the projections if they can accelerate their investment rates and institutional reforms.
The PwC analysis has a number of high-level messages for businesses looking to develop their emerging market strategies, including:
John Hawksworth concludes:
“Recent experience has underlined that relatively rapid growth is not guaranteed for emerging economies, as indicated by recent problems in Russia and Brazil, for example. It requires sustained and effective investment in infrastructure and improving political, economic, legal and social institutions.
“It also requires remaining open to the free flow of technology, ideas and talented people that are the key drivers of economic catch-up growth. Overdependence on natural resources could also impede long-term growth in countries such as Russia, Nigeria and Saudi Arabia unless they can diversify their economies over time.
“In short, while our analysis confirms that emerging markets have huge potential, they can also be an institutional minefield – both managers and investors need to tread carefully.”
1. PPPs vs MERs: there is no single correct way to measure the relative size of economies at different stages of development. Depending on the purpose of the exercise, GDP at either market exchange rates (MERs) 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 because this correct for relative price differences, while GDP at MERs is a better measure of the relative total size of markets for businesses at a given point in time. However, historical evidence shows that MERs will generally, in the long run, tend to move up towards PPPs for emerging economies as their average income levels gradually narrow the gap with the current advanced economies. An econometric equation within the PwC long-term growth model that reflects this historical relationship forms the basis for the projections of GDP at MERs in the report. This also makes the common simplifying assumption that PPP exchange rates remain constant in real terms over time. Projections of MERs are subject to particularly high margins of uncertainty, however, which is why both the report and this media release focus primarily on projections of GDP at PPPs.
2. A copy of the full report The World in 2050: Will the shift in global economic power continue? will be published on 10th February 2015 at http://www.pwc.com/world2050.
3. This report is part of PwC’s wider research programme on the megatrends shaping global economic and business development. More details can be found here: http://www.pwc.co.uk/issues/megatrends/index.jhtml.
4. Further analysis of India’s growth potential and the reforms necessary to fulfil this is contained in another recent report on Future of India: The Winning Leap. This can be downloaded from: http://www.pwc.in/future-of-india/index.jhtml.
5. More details on business strategies for emerging markets can be found in reports by the PwC Growth Markets Centre, which are available from: http://www.pwc.com/gx/en/growth-markets-centre/index.jhtml.
6. PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services. Find out more and tell us what matters to you by visiting us at www.pwc.com.