the world in 2050 the world in 2050: 5 key messages 5 business implications 3 drivers of global...
TRANSCRIPT
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Contents
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45 6
Summary Projected relative size of economies
Projected real GDP growth rates
Projected average income levels
Risks to growth Implications for policy and business
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Pg 19 Pg 22 Pg 254
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The World in 2050: 5 key messages
5
Business implications
3
Drivers of global growth
4
Policyimplications
1
The world economy
2
Shifts in global
economic power
The world economy could
more than double in size by
2050, assuming broadly growth-
friendly policies and no global
catastrophes.
The E7 could account for
c.50% of world GDP by 2050, up from 35% today.
Emerging economies could be
six of the largest seven economies in the world by 2050
Emerging economies will
drive global growth.
Vietnam, India and Bangladesh could
be three of the fastest growing
larger economies over this period.
To realise this potential,
governments need to implement structural reforms to improve
macroeconomic stability, diversify
their economies and develop more
effective institutions.
Rising incomes in emerging markets
will open up great opportunities for businesses with
sufficiently flexible and
patient strategies for these fast
evolving markets.
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2. Projected relative size of economies
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How have we modelled long-term GDP trends?
What has changed since our February 2015 report?
We have made two main changes to our model since 2015:
1. All historical data has been updated to reflect the latest available data. Our detailed assumptions on key model inputs have been revised to reflect actual trends over the past two years.
2. We have reduced the assumed US trend labour productivity growth rate from 2% to 1.5% per annum, reflecting accumulating evidence that potential growth has fallen in the US. This can be attributed to factors including the US’s ageing population, a plateau of educational attainment and rising household and government deficits generating financial instability.
Working-age population growth
Investment in physical capital
Investment in human capital
(education levels)
Catch-up with US total factor
productivity levels
• Our model ignores short-term cyclical variations, focusing instead on long-term supply side fundamentals.
• We assume no major global catastrophes or political shifts that cut economies off from the flow of new technologies and ideas.
• We take the US as representing the ‘global frontier’ in terms of technology and productivity that other economies seek to catch up with over time. US labour productivity growth is assumed to grow at a trend rate of 1.5% per annum.
• We use a robust model where GDP is driven by four main supply-side factors, using a Cobb-Douglas production function that is a standard approach in the academic economic literature and widely used by the IMF, OECD and others in long-term growth studies.
GDP in PPPs vs MERs
We focus on GDP at purchasing power parity (PPPs), but also include GDP at market exchange rates (MERs).
• The difference between GDP at PPP and MER estimates reflect that price levels in lower income countries are generally significantly lower than in advanced economies based on current market exchange rates.
• This means emerging markets tend to have significantly higher GDP when measured at PPPs than at MERS.
• In the long-run, the difference between the two estimates should decline as faster emerging market growth pushes up price levels. This is a very gradual process, however, so full price convergence will still not be complete by 2050 in most emerging markets.
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The shift in global economic power from the G7 to the seven largest emerging economies (the ‘E7’) will continue in the coming decades
In 1995, the E7 was only about half the size of the G7 in PPP terms. By 2015, the two groups were around the same size. Looking ahead, the E7 could be around double the size of the G7 by 2040 (in PPP terms).
By 2050, we project that the G7’s share of world GDP will fall to only around 20%, while the E7 will increase their share to almost 50% of global GDP at PPPs by 2050.
China is already the largest economy in PPP terms, having overtaken the US in 2014. We project China could also be the largest economy in MER terms before 2030.
India will also drive the shift in global economic power and could overtake the US to be the world’s second largest economy in PPP terms by 2050.
Emerging economies are projected to dominate the list of the largest economies in the long run, with Indonesia, Brazil, Russia and Mexico taking 4th to 7th places in 2050.
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0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2016 PPP 2050 PPP 2016 MER 2050 MER
GD
P in
PP
Ps a
nd M
ER
s (
consta
nt,
2016 U
S$ b
n)
G7 E7
Relative size of G7 and E7 economies in 2016 and 2050
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February 2017The World in 2050: How will the global economic order change?
G7 = US, Japan, Germany, UK, France, Italy and Canada
E7 = China, India, Brazil, Russia, Indonesia, Mexico and Turkey
PwC
US and Europe will steadily lose ground relative to the Asian giants
Increasing
GDP in PPPs
China’s share of world GDP at PPPs could increase to around
20% by 2050.
India could increase its share of world GDP at PPPs by 8
percentage points to 15% by 2050.
Europe’s share of the world economy at PPPs could fall from around 15% to 9% over the next 34 years.
The US could fall to third place in the global GDP rankings by 2050, as its
share of world GDP at PPPs falls to only around 12%.
Brazil and Mexico could be larger than Japan and Germany
by 2050.
Projected GDP (PPP terms) in 2050
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Emerging economies will dominate the list of the world’s 10 largest economies and increase their share of world GDP to almost 50% by 2050
2016 2050
China 1 1 China
US 2 2 India
India 3 3 US
Japan 4 4 Indonesia
Germany 5 5 Brazil
Russia 6 6 Russia
Brazil 7 7 Mexico
Indonesia 8 8 Japan
UK 9 9 Germany
France 10 10 UK
G7
G7
E7E7
Rest of the world
Rest of the world
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20502016
Rankings of GDP at PPPs Share of world GDP at PPPs
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By 2050, the E7 are projected to be significantly larger than the G7 even at market exchange rates (MERs), driven primarily by the continued rise of China and India
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
GD
P (
US
$ b
nat consta
nt
2016 v
alu
es)
US China & India Other G7 Other E7
2016 PPP 2050 PPP 2016 MER 2050 MER
USUS
US
USChina &
India
China &
India
China &
India
China &
India
E7 120% larger than
G7 E7 67% larger than
G7
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When looking at GDP in MER terms, the E7 still lags behind the G7 due to the E7’s lower average price levels, but could overtake the G7 by 2030
0
20,000
40,000
60,000
80,000
100,000
120,000
201
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201
8
202
0
202
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202
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204
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204
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205
0
GD
P in
ME
Rs (
co
ns
tan
t, 2
01
6 U
S$ b
n)
E7
G7
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
201
6
201
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202
0
202
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202
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203
2
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4
203
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203
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0
204
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4
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6
204
8
205
0
GD
P in
PP
Ps
(c
on
sta
nt,
20
16
US
$ b
n)
E7
G7
Projected growth paths in PPP terms Projected growth paths in MER terms
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The rise of China and, in the long run, India will gradually push down the US and EU27 shares of world GDP at PPPs (broadly similar trends are projected for GDP shares at MERs, but China and India are starting from lower levels on that measure)
0%
5%
10%
15%
20%
25%
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050
Pro
jecte
d s
hare
of w
orld G
DP
in P
PP
s
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China
India
US
EU27
PwC
We expect to see some other emerging markets take centre stage by 2050, although this depends on long-term progress on structural reforms
Vietnam Philippines Nigeria Australia Italy Spain
32nd
20th
28th
19th
22nd
14th
26th
21st
28th
15th12th19th
Biggest fallers (GDP at PPPs)
Biggest risers (GDP at PPPs)
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3. Projected real GDP growth rates
The World in 2050: How will the global economic order change?
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We expect the shifts in global economic power we have seen since 2000 to continue in most cases in future decades
Large emerging market economies will continue to bekey drivers of global growth, as their lower initial levels of economic development provide more opportunities for catch-up with current advanced economies like the G7.
The top 15 fastest growing economies over the next 34 years will all be developing and emerging market economies according to our projections.
Vietnam, India and Bangladesh have the potential to be the fastest growing economies, with annual average growth of around 5% over the period to 2050, but Chinese growth will slow as its population ages and its economy matures.
E7 growth could average around 3.5% per annumbetween 2016 and 2050, compared to c.1.5% for the G7.
Population growth will be a key driver of GDP growth in many emerging markets, such as Nigeria, Pakistan and India. But a key challenge will be too create enough jobs in these economies for their young people.
1
2
3
4
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Correlation between historical and projected GDP growth at PPPs
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CanadaFrance
Germany
Italy
Japan
UK
US
Brazil
China
India
IndonesiaMexico
Russia
Turkey
Bangladesh
Nigeria
Vietnam
0%
1%
2%
3%
4%
5%
6%
0% 2% 4% 6% 8% 10%
Pro
jecte
d a
vera
ge a
nnual G
DP
gro
wth
in P
PP
s (
2016
-2050)
Average annual GDP growth in PPPs (2000-2015)
PwC
Annual global economic growth is projected to average around 2.6% over the next 34 years, slowing down over time as emerging markets mature and populations age in advanced and some emerging economies (e.g. China)
-1%
0%
1%
2%
3%
4%
5%
6%
7%
-2% 0% 2% 4% 6% 8% 10%
Avera
ge P
PP
per
capita g
row
th p
.a.
(2016
-2050)
Average PPP per capita growth p.a. (2000-2015)
2016-2020 2021-2030 2031-2040 2041-2050
3.5%
2.7%
2.5%
2.4%
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Population growth will support growth in most emerging markets, but ageing populations could be a drag on growth in advanced economies and emerging markets like China and Russia (unless people work for longer)
-1%
0%
1%
2%
3%
4%
5%
6%
Ave
rag
e r
ea
l G
DP
gro
wth
p.a
. (2
01
6-2
05
0)
Average Pop Growth p.a % Average Real Growth per capita p.a % Average GDP growth p.a. (in domestic currency)
Real GDP growth broken down into:
1. Average population growth; and
2. Average growth in GDP per capita, which is closely related to labour productivity growth
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China and India are projected to continue their current strong growth rates to at least 2020, before slowing down progressively in later decades as they mature (as happened to Japan, South Korea and other earlier emerging economies in previous decades)
0%
1%
2%
3%
4%
5%
6%
7%
8%
Brazil Russia India China US UK EU27 World
Ave
rag
e a
nn
ua
l g
row
th in
GD
P i
n P
PP
s
2016 - 2020 2021 - 2030 2031 - 2040 2041 - 2050
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4. Projected average income levels
The World in 2050: How will the global economic order change?
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Average incomes are likely to remain lower in emerging markets than the G7 even in 2050, but they should close a significant amount of the gap by then (e.g. China’s average real income level in 2050 similar to UK today)
With the possible exception of Italy, all of the G7 continue to sit above the E7 in terms of GDP per capita in 2050. Russian average income is projected to be broadly on par with Italy by that time.
The largest economy in the world in 2050, China, only achieves a middling rank in terms of GDP per capita (but still similar to the UK’s level today).
Despite overtaking the US by 2050 in total GDP at PPP terms, India ranks only 28thof of the 32 countries in our study in terms of GDP per capita in 2050. India’s average real income level then might be similar to that in Russia today.
China and India are closing the gap with the top. In 2016, US GDP per capita was almost 9 times that of India’s. By 2050, it may be only around 3 times higher than in India (and twice Chinese levels).
While population growth will be a key driver of GDP growth in emerging markets, it can have partly offsetting effects on average income growth., particularly if job creation is constrained.
1
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5
GDP per capita is on the rise in the E7
0
10
20
30
40
50
60
70
80
90
100
GD
P p
er
capita (
PP
Ps,
000s,
consta
nt
2016 U
S$)
2016 2050
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In contrast to total GDP, we do not see such a marked shift towards Asia by 2050 in terms of relative levels of average GDP per capita
Increasing GDP
per capitaThe US continues sit the highest of the G7 in our rankings of GDP
per capita in 2050
Nigeria, Pakistan and India will experience some of the greatest population
growth to 2050, but growth in average GDP per capita are projected to be
relatively less strong in these economies
Negative populationgrowth in Japan, Russia and most of Europecould help keep average incomes relatively higher as
labour shortages arise
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5. Risks to growth
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A wide range of risks could see growth fall below projected potential rates, particularly if there is a widespread retreat from globalisation – althoughthere could also be offsetting upside possibilities
Trend US labour productivity growth decreases by a further 0.5 percentage points, from 1.5% to 1% per annum, representing a deceleration in global technological progress within the structure of our model
1
We consider three scenarios, each one building on the assumptions made in the previous one to create a cumulative set of three possible downside risks – however, there could also be upside possibilities for all three variables
Convergence speeds for total factor productivity (TFP) levels reduce by half (e.g. due to rising protectionism) and trend annual US labour productivity growth decreases by 0.5 percentage points as in scenario 1
2
Investment to GDP ratios decrease by a quarter, convergence speeds (for TFP levels) decrease by half, and annual trend US labour productivity growth decreases by 0.5 percentage points.
3 100,000
150,000
200,000
250,000
300,000
GD
P in
PP
Ps (
co
nsta
nt,
20
16
US
$ b
n)
Main Scenario 1 Scenario 2 Scenario 3
For the most severe downside scenario (3), the size of the world economy in 2050 could be around 20% smaller than in our main scenario
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Reducing US labour productivity has a larger impact on G7 growth, while the E7 are more sensitive to reduced TFP convergence speeds
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February 2017The World in 2050: How will the global economic order change?
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
G7 E7 World
Avera
ge a
nnual G
DP
gro
wth
rate
(2016
-2050)
Main scenario Scenario 1 Scenario 2 Scenario 3
PwC
6. Implications for public policy and business
The World in 2050: How will the global economic order change?
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Developing stable, high quality institutions will be critical to emerging markets realising their full economic potential. Businesses need to develop a global ecosystem of suppliers and partners across these markets.
The World in 2050: How will the global economic order change?
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February 2017
“I would particularly emphasise the critical importance of the quality of institutions in long-term economic success or failure. If we look at the rise of the West, growth was supported by political systems that invested in public goods (including health and
education as well as physical infrastructure) and provided legal systems that protected property rights and provided a conduciveenvironment for long-term business investment.”
“There is no silver bullet, but it does put more of a premium than ever on having a business strategy that is dynamic enough to respond to both the opportunities and challenges that emerging markets present. For large companies this typically involves
creating a global ecosystem of suppliers and partners to support development and marketing of products and services, focusing oncapturing most of the value in their ecosystem.”
- Professor Michael G. Jacobides (LBS)
For governments…
For businesses…
PwC
Diversification, public sector reform and creating a business environment that encourages innovation will be critical to sustainable long-term growthViews of senior PwC experts on China, Nigeria, Colombia, Poland and Turkey
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February 2017
“Looking ahead, China still has great potential for growth. Its urbanisation process is still at a relatively early stage, and its services sector has a lot of scope to catch up with economies like the US. Reform of state-owned enterprises, if properly handled, could shatter monopolies and create new business
opportunities worth trillions of dollars.”
- Allan Zhang, Chief Economist, PwC China
“Nigeria’s potential advantages for future growth include a large consumer market, a strategic geographic location as a hub for Africa, and a young and entrepreneurial population.
The first step in harnessing this opportunity requires deliberate efforts to improve value-adding activity in the
non-oil economy, particularly in agriculture and services.”
- Dr. Andrew S. Nevin, Chief Economist, PwC Nigeria
“If Turkey can overcome its short-term political uncertainties and focus its attention on reforms in all needed
areas, the country can provide great long-term business opportunities with its favourable demographics and
geopolitical position.”
- Başar Yıldırım, Chief Economist, PwC Turkey
“Growth in Colombia over recent years has been driven by the financial services industry and the social services sector. The Colombian government has also been actively promoting the agribusiness sector, as well as the industrial manufacturing sector
in order to promote long-term economic growth in light of falling commodity prices.”
- Gustavo Fernando Dreispiel, Senior Partner, PwC Colombia
“Poland’s new government announced a new programme of economic development aimed at gradually shifting the
paradigm of economic development from wage competitiveness to innovation and international expansion of
Polish companies.”
- Mateusz Walewski, Senior Economist, PwC Poland
PwC
PwC contacts, services and insights
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February 2017
PwC
For more information on this study, please contact John or Hannah from our Economics & Policy team in London
John Hawksworth
Chief Economist, London
Hannah Audino
Economist, London
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February 2017The World in 2050: How will the global economic order change?
For related PwC services and insights please see:
http://www.pwc.co.uk/services/economics-policy.html
http://www.pwc.co.uk/issues/megatrends.html
http://www.pwc.com/gx/en/issues/high-growth-markets.html
http://www.pwc.com/gx/en/ceo-agenda/ceosurvey/2017/gb
http://www.strategyand.pwc.com/
http://www.psrc.pwc.com/
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