How will the global economic order change by 2050?

07 February 2017

By John Hawksworth and Hannah Audino

What could the world in 2050 look like? Driverless cars may be commonplace. We might rely completely on renewable energy sources. We might have found a cure for cancer. Maybe we’ll go on holidays into space. Maybe. But one thing we can be relatively sure about is that the shifts in global economic power we have seen in the past three decades will continue.

We explain why we believe this in the latest of our ‘World in 2050’ series of reports, which projects long-run GDP growth for 32 of the world’s largest economies. In the two years since our last 2050 report, global commodity prices fell to lows in early 2016 not seen for over a decade, the UK voted to leave the EU, President Trump was elected and world trade growth has remained well below pre-crisis levels. But our model projections suggest that these short-term shocks have not significantly dented long-term global economic growth prospects, which are driven by the fundamentals of working age population growth and technology-driven productivity growth.

Here are the four key things to take away from this analysis:

  1. Many of today’s emerging markets will no longer be emerging – they will be the largest economies in the world

By 2050, China and India will be the world’s two largest economies, based on GDP measured in purchasing power parity (PPP) terms, ahead of the US. Indeed we project that six of the seven largest economies in 2050 to be today’s emerging markets, with Indonesia, Brazil, Russia and Mexico 4th to 7th places respectively.

Gdp2050_updated

In contrast, the G7[1] will gradually fall down the global GDP rankings – indeed Italy, Canada and Spain may not even feature in the top 20 largest economies in 2050. The UK should just about keep its place in the global top 10 in 2050, but only if it remains open to both talent and trade after Brexit.

  1. The US and Europe will steadily lose ground to China and India

By 2050, we project that the US share of world GDP (at PPPs) will have declined from 16% now to only around 12%, while that of the EU27 (excluding the UK after Brexit) will have fallen even more precipitously from 15% to below 10%.

By contrast, China’s share could be up to around 20% of world GDP by 2050 and India, though a relatively later developer, could be up from a 7% share today to around 15% by 2050. Of course, these projections are unlikely to be precisely correct, but the general direction of travel seems clear given the power of numbers and technological catch-up are firmly on the side of the Asian giants.

  1. Global economic growth will be driven by emerging market economies

In our projections, the world economy more than doubles in size by 2050 but growth is uneven as the chart below shows. Global growth will be driven primarily by emerging markets; the E7 will average growth of almost 3.5% over the next 34 years, compared to just 1.6% average growth for the G7.

Worldin2050figure117

Vietnam, India and Bangladesh could be the world’s fastest growing economies over the period to 2050 with average growth of around 5% a year. Population growth will support economic growth in many emerging markets, especially Pakistan, the Philippines and Nigeria, boosting domestic demand and the size of the workforce – as long as productive jobs can be created for their young people.

  1. Emerging markets will get richer, creating huge business opportunities

While the total size of giants like China and India will be stunning by 2050, their average income levels will still be well behind those in the US or Europe. But they will close some of the gap. In 2016, average US GDP per capita was 4 times that of China and around 9 times the level in India. By 2050, these gaps are projected to close significantly with US average income levels being only around twice those in China and three times those in India. This will spur a huge rise in the middle class in these and other large emerging economies, which in turn will create great opportunities for international businesses selling consumer goods and services.

This does not mean, of course, that making money will be easy in emerging markets. Competition will be fierce, product offerings will need to be tailored to local customer preferences and regulatory regimes, and international investors will need to be patient to develop trusted relationships with local partners and ride out the short-term ups and downs of sometimes volatile emerging economies.

The work of our Growth Markets Centre, backed by decades of PwC experience in advising on these countries, sets out both the pitfalls and the practical strategies that can bring success in emerging markets. But businesses in the UK or elsewhere that do not seize these opportunities will be playing in the slow lane of history.

For more information on this topic, please visit our World in 2050 website here.

[1] The G7 economies are a group of 7 of the largest economies – Canada, France, Germany, Italy, Japan, the UK and the US. The E7 is  a group of 7 emerging economies – Brazil, China, India, Indonesia, Mexico, Russia, and Turkey.

John Hawksworth and Hannah Audino
Tel:020 7213 1650 or 07765 290554

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