World in 2050

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

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.

Nick Kós, Country Managing Partner of PwC Hungary 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.”

Key findings:

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

Notes:

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.

A copy of the World in 2050 The BRICs and Beyond: Prospects, challenges and opportunities report can be found at the following site: PwC report.

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