With the rapid growth of the emerging markets, the global economy is experiencing a seismic shift. In this piece, we argue that this shift is set to continue.
By 2050, the collective size of the economies we currently deem 'emerging' will have increased five-fold and will be larger than the developed world.
And 19 of the 30 largest economies will be from the emerging world.
At the same time, there will be a marked decline in the economic might—and potentially the political clout—of many small population, ageing, rich economies in Europe.
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With the rapid growth of the emerging markets, the global economy is experiencing a seismic shift. The world in 2050 will look very different.
Of the top-30 economies by gross domestic product, 19 will be countries we currently describe as 'emerging' – their growth causing global output to treble. China will be the world's largest economy with India the third-biggest.
By 2050, the emerging countries will have increased fivefold and be larger than the developed world. Mexico, Turkey, Indonesia, Egypt, Malaysia, Thailand, Colombia and Venezuela will make substantial progress up the global league table.
The US may find its ego bruised by losing the top spot but it will remain a dominant force at international policy meetings. By contrast, Europe's small-population, well-developed economies will slide rapidly down the table. Switzerland and the Netherlands slip significantly, and Sweden, Belgium, Austria, Norway and Denmark drop out of our Top 30 altogether, potentially reducing their say in the global policy arena.
Demographic change is even more dramatic outside Europe. The working population will rise by 73% in Saudi Arabia and fall 37% in Japan – movements reflected in their differing fortunes.
But by 2050, the seismic shift in the global economy will have only just begun. Despite a sevenfold increase, China's income per capita will still be only 32% of the US's and scope for further growth will be substantial.
Most obviously, there have been some significant regime changes. Communism in large swathes of the world, including the Soviet Union and Mao's China, effectively divided the economic world and closed these systems to trade and the technological progress in the West.
India's relative underperformance over that period also stemmed from significant government control and an inability to allocate resources efficiently. In the early 1990s, India made significant strides in correcting at least some of these supply-side issues. Industrial licensing was largely removed and import restrictions pared back.
Latin America, by contrast, had made itself considerably more open to the competition, trade and capital offered by the global economy but was plagued through the 1970s and '80s by a lack of monetary control, giving rise to frequent inflationary outbursts and debt crises. Improved governance has played a key role in turning economic fortunes there.
China has opened itself up to foreign direct investment and global trade but there are still challenges to overcome that have the potential to raise its growth rate further. Fuzziness of ownership arrangements and a lack of legal infrastructure will constrain it, but liberalisation of the financial sector should lead to more efficient allocation of capital.
However, it's all very well having the latest technology, but if a workforce hasn't been sufficiently trained it can't use it. But once 'copy and paste' growth is complete, it seems likely the most educated workforce will innovate and drive technological progress. And, on health, if you expect to live – and therefore work – for a long time, it will be worthwhile investing years getting yourself educated.
Of course, many of the new economies are so far from reaching developed status that constraints will not kick in for some time. In China, 12% of output is still agricultural production but it requires 40% of its working population to deliver this. This highlights how the automation of food production and the 'urbanisation' of the workforce still have a long way to go.
It is no surprise to see China near the top of the growth table. But as income per capita rises and the one-child policy leads to a demographic headwind, India's growth rate soon overtakes China's beyond 2030. And Malaysia, Thailand and Indonesia all have rapid rates of growth which, as their education and policy systems develop, are likely to be sustained over our forecast horizon.
Russia is projected to continue its rapid expansion, but it scores fewer points for monetary stability and has a less-supportive demographic outlook than some Asian rivals. Turkey and Egypt each look set for a good run too, while Colombia should deliver the fastest growth rates in the LatAm region.
Does the planet have enough capacity to sustain this tripling in economic output by 2050? Yes – but only if levels of resource productivity are improved many times over. The global economy has entered a period of ecological deficit – depleting natural assets faster than they can be replenished. By 2030, the footprint is projected to have deepened to consuming two planets' worth of resources each year and to 2.8 planets in 2050. And more than 1bn people are still undernourished and lack access to electricity or modern sanitation.
To have a reasonable chance of holding long-term global warming to around 2 degrees C, greenhouse gases must halve by 2050 – despite the global economy tripling. Breaking the historic link between economic growth and carbon emissions will certainly be hard but it is both technologically feasible and economically attractive.
The potential for meeting nutritional needs and sustaining resources in a world of 9bn people with much higher incomes clearly exists. With investment, yields can be improved, crops adapted to a changing climate, and post-harvest losses cut.
What might go wrong? In a nutshell, our projections are based on a rather rosy backdrop – everything going right while governments and policymakers do the right thing. The biggest danger is that the open borders that have delivered so much prosperity are closed.
|Order in 2050
now and 2050