PwC predicts continued rise of a China-led Asia in next 35 years

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PeopleSquareTrafficChina is forecast to overtake the U.S. as the largest economy by 2030, with India giving the American nation a close fight for second place by 2050, while four Southeast Asian countries—Indonesia, Philippines, Vietnam, and Malaysia—are among the emerging economies identified to make great strides over the next 35 years.

These are some of the key findings from the latest report from PwC entitled The World in 2050: Will the Shift in Global Economic Power Continue? The paper 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 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,” said the report.

It projects the world economy to grow at an average of just over 3% per annum from 2014 to 2050, 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.

“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,” said John Hawksworth, PwC chief economist and co-author of the report.

“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.”

As for India, Hawksworth said the country has the potential to sustain its higher growth rate for longer and become a US$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,” he added.

The report also contains projections based on GDP at market exchange rates, with China projected to overtake the U.S. in around 2028, while India would clearly be the third largest economy in the world in 2050, but still some way behind the U.S.

PwC also projects that emerging economies like Indonesia, Brazil, and Mexico have the potential to be larger than the UK and France by 2030, with Indonesia possibly rising as high as fourth place in the world rankings by 2050 if it can sustain growth-friendly policies.

Nigeria, Vietnam, and the Philippines are notable risers in the global GDP rankings in the long term, reflecting relatively high projected average growth rates of around 4.5% to 5.5% per annum over the period to 2050.

Malaysia is also projected to grow at around 4% per annum on average in the period to 2050, which is higher than China’s projected average growth rate of around 3.5% per annum over this period, and an impressive performance for what is already a middle-income country.

Colombia is also seen to grow at a relatively healthy long term rate of around 4% per annum over the period to 2050, noticeably faster than its larger Southern American neighbors like Brazil and Argentina.

Japanese growth is projected to be the slowest of all 32 countries covered in total terms, driven in part by a steadily declining population; as a result Japan is projected to fall from fourth to seventh place in the global GDP rankings over the period to 2050.

European economies tend to slide down the rankings, with growth rates in the major Eurozone economies projected to average only around 1.5% to 2% per annum to 2050.

Poland is projected to have the highest average growth rate of the large EU economies, and also to outperform Russia in terms of long-run growth.

Based on shares of global GDP at PPPs, PwC forecasts that China’s share of world GDP will flatten off at around 20% from the mid-2020s onwards as its growth rate reverts to the global mean.

The U.S.’s share declines gradually from around 17% now to around 14% by 2050, while India’s potentially doubles from around 7% now to be more or less neck and neck with the U.S. by the middle of the century in PPP terms.

The EU’s overall share of world GDP is projected to decline from around 17.5% now to only around 12% by 2050, assuming that total EU GDP grows at the same rate as the aggregate for the largest seven EU economies covered by the study.

Hawksworth said: “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.”

These projections assume, however, that emerging markets will follow broadly growth-friendly policies, said the report. “In practice, not all may do so and therefore not all of these economies will fulfill 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.”

Photo:Pryku