Two decades have elapsed since the coining of the BRICs acronym, accompanied by bold projections that these economies would surpass many of the G7 nations by 2050. This discussion now presents fresh, expanded projections spanning 104 countries and extending out to 2075. Four major themes have emerged, shaping the course of the global economy:
Theme #1: Decelerating Global Growth, Driven by Slower Population Expansion
Once, global growth surged at an average rate of 3.6% annually during the decade leading up to the Global Crisis. However, in the decade preceding the Covid pandemic, this momentum waned, settling at 3.2% per year on a market-weighted basis. This decline has been widespread, affecting both developed and emerging economies alike. The root causes are twofold – a dampening of global population growth and a weakening in productivity gains, possibly linked to the deceleration of globalisation. As per our revised projections, the zenith of potential global growth has been surpassed, with an average of 2.8% expected between 2024 and 2029, followed by a gradual downward trajectory.
Theme #2: Unfolding Convergence among Emerging Markets
At the dawn of the century, the disparity between emerging markets (EMs) and developed economies seemed insurmountable, and the notion of China, India, and other significant EMs becoming dominant global forces appeared improbable. Yet, the landscape has evolved dramatically over the past two decades. China, once comparable to Italy and a mere 12% of the US GDP, has now ascended to the world’s second-largest economy, with its GDP nearly touching 80% of the US. India, too, has made substantial strides, securing its place as the world’s fifth-largest economy.
Theme #3: A Decade of Extraordinary US Performance, Unlikely to Repeat
Notably, there existed a decade of US exceptionalism, a time when the nation’s economic performance stood out remarkably. However, the prospects of replicating this phenomenon in the future appear remote. Unfortunately, this excerpt does not delve into the factors underpinning this exceptional phase.
Theme #4: Shifting Global Inequality, Elevating Local Inequality
The long-term projections allude to a noteworthy trend – while global inequality may witness a decline, disparities within individual countries might magnify. This implies that income gaps within nations could widen, even if the disparities between countries on a global scale narrow.
It is essential to bear in mind that long-term projections inherently carry inherent risks, and the authors perceive the results not as definitive forecasts, but rather as a means to unearth broad global dynamics and their lasting ramifications. The forecasting model employed in this analysis is comprehensively detailed in a separate publication by the authors.
In essence, this article provides a comprehensive outlook on the evolving landscape of the global economy, shedding light on the shifting positions of nations and regions, while also highlighting the potential challenges ahead in the forthcoming decades.
Figure 1 Global potential growth on a gradually declining path
Note: Global GDP growth; solid line – 5Y centred average; dotted line – annual growth.
Source: GS (2022); IMF
Most of the anticipated deceleration in global economic growth can be attributed to shifts in demographics. Over the past half-century, the pace of global population expansion has halved, dwindling from approximately 2% annually to less than 1% at present. According to the latest United Nations population projections, this trend is projected to continue, with population growth eventually approaching nearly zero by the year 2075 (as depicted in Figure 2). Notably, these revised population projections indicate that the world’s population is now foreseen to peak at around 10 billion individuals, as opposed to the previous expectation of surpassing 11 billion. This change in population dynamics is indeed a “positive challenge,” as it stands as a vital prerequisite for ensuring long-term environmental sustainability. Nonetheless, the adjustment towards weaker population growth and aging societies presents a series of economic complexities, with the most significant concerns arising from the mounting costs associated with healthcare and retirement. As the world’s population ages, the economic challenges stemming from this demographic shift are likely to progressively affect an increasing number of both developed and emerging economies in the forthcoming decades.
Figure 2 Global population growth has halved since the 1960s/70s and the projected peak population is now falling
Theme #2: EM convergence remains intact, led by Asia’s powerhouses
While the pace of real GDP growth has moderated in both developed and emerging economies, the relative dynamics continue to favor the latter. The convergence between emerging and developed economies, while slightly slower compared to the 2000s, still surpasses the convergence observed in previous decades, where such trends were rare exceptions. This ongoing income convergence suggests that emerging economies persistently outperform their developed counterparts in terms of growth rates.
As income convergence continues, the share of global GDP attributed to emerging economies is expected to steadily increase over time. These economies are gradually inching closer to the income levels of developed nations, resulting in a noticeable shift in the distribution of global income towards the burgeoning group of “middle-income” economies.
The article also takes note of the divergence in GDP growth performance across various economies compared to projections made in 2011. While most economies fell short of the predicted growth rates, there were notable exceptions. China, India, and Indonesia managed to outperform expectations, while Russia, Brazil, and Latin America experienced significant underperformance.
Looking ahead to the next three decades, the center of gravity for global GDP is projected to tilt further towards Asia. The anticipated ranking of the world’s largest economies in 2050 highlights China, the US, India, Indonesia, and Germany as the top five contenders, with Indonesia surpassing Brazil and Russia to join the list of prominent emerging markets.
Furthermore, an extended projection horizon to 2075 unveils the promising prospects of countries like Nigeria, Pakistan, and Egypt. The existence of rapid population growth in these regions indicates the potential for their economies to ascend to become some of the world’s largest, given the implementation of favorable policies and establishment of robust institutions.
In summary, the article underscores the ongoing trend of income convergence between emerging and developed economies, with emerging economies poised to play an increasingly significant role in the global economic landscape. As Asia’s prominence grows and specific economies outperform expectations, the shape of the global economy is destined to witness substantial transformations in the forthcoming decades and beyond.
Figure 3 Our projections imply that China, the United States, India, Indonesia, and Germany will be the world’s five largest economies in 2050
Note: World’s largest economies (measured in USD).
Source: GS (2022)
Figure 4a China to overtake US in around 2035, while India should catch up by 2075
Figure 4b EM leaderboard to change significantly by 2075
Note: GDP level projections in Real (2021) USD trillion.
Source: GS (2022)
Theme #3: A decade of US exceptionalism that is unlikely to be repeated
Uniquely among large, developed economies, the US slightly outperformed our long-term real GDP growth projections over the past decade. Moreover, with the US dollar also appreciating sharply over this period, the relative dollar value of the US economy significantly outstripped our expectations. It is not unusual for individual countries to significantly out or underperform long-term projections of this type over five- to ten-year periods – indeed, other countries outperformed by more than the US. The question is whether this outperformance is likely to be repeated over the next decade. On balance, we think not. US potential growth remains significantly lower than that of large EM economies, including China and (especially) India. Moreover, the dollar’s exceptional strength in recent years has resulted in it rising significantly above its PPP-based fair value, and this deviation implies that it is more likely to depreciate over the coming ten years.
Theme #4: Less global inequality, more local inequality
Twenty years of EM convergence has resulted in a more equal distribution of global incomes (Figure 5). This has been an underappreciated benefit of globalisation over the past 20-25 years, and our projections imply that it will continue. However, while income inequality between countries has fallen, income inequality within countries has risen. And, as governments are responsible for (and ultimately held accountable for) national rather than global developments, the global perspective is not well represented politically. This presents a major challenge to the process of globalisation.
Figure 5a Cross-country inequality to continue declining…
Figure 5b …while within-country inequality remains high
Note: Global Lorenz Curve – closer to the 45-degree line implies less inequality (top panel); GINI coefficients for major economies (bottom panel).
Source: GS (2022), World Bank
Key long-term risks: Protectionism and climate change
Of the many risks to our projections, we view two as particularly important for world growth and income convergence.
- First is the risk that populist nationalism leads to increased protectionism and a reversal of globalisation. Populist nationalists have gained power in several countries, and the supply chain disruptions during the Covid pandemic have resulted in an increased focus on on-shoring and supply chain resilience. At least to date, this has led to a slowdown rather than a reversal of globalisation, in our assessment. However, the risk of a reversal is clear. Globalisation has been a powerful force in reducing income inequality across countries. But to ensure that it continues, greater efforts need to be made for sharing its benefits more equally within countries.
- Second is the risk of environmental catastrophe is presented by climate change. We reject the view that economic growth and environmental sustainability are incompatible – many countries have been able to ‘decouple’ economic growth from carbon emissions, so there is no practical reason why this should not be achievable for the global economy as a whole. But achieving sustainable growth requires economic sacrifices and a globally coordinated response, both of which will be politically difficult to achieve. This risk is especially relevant to the long-term economic outlook of low-income economies with geographies that are especially exposed to climate change. With limited financial means to protect themselves against the costs of climate change, out-migration from these economies could dampen the demographic shifts that are projected to drive GDP growth.
Post time: Jul-24-2023