The UK is predicted to drop to 11th place in the rankings of the world’s largest economies by 2050, as the global economic power shift away from the established advanced economies in North America, Western Europe and Japan continues over the next 35 years. This will happen despite a projected marked slowdown in Chinese growth after 2020, according to the latest in PwC’s series of reports on ‘The World in 2050.’
The report also finds, however, that the UK is doing well compared to its G7 peer group in terms of growth, which is projected to average around 2.4% per annum over the period to 2050. This is similar to the US and above growth rates in the major Eurozone economies, which are only projected to average around 1.5-2% per annum for the same period.
On Monday official statistics showed India’s GDP rose by 7.5% in 2014, slightly above China’s economy in the same period and the Economist said that one thing economists now agree on is that the economy is doing better now than it was in 2013. "Indeed India has been a rare bright spot among emerging markets."
John Hawksworth, PwC’s chief economist, said: “Emerging economies like Indonesia, Brazil and Mexico have the potential to be larger than the UK and France by 2030. Indonesia could rise as high as 4th place in the world rankings by 2050 if it can sustain growth-friendly policies.
“But despite expecting the UK to drop out of the top 10 largest economies by 2050, the projected average UK growth rate to 2050 is stronger than other large Western European economies such as Germany, Italy and Spain that face even bigger challenges than the UK from ageing populations and slowing productivity growth.”
The world economy is projected to grow at an average of around 3% per annum from 2014-50 – doubling in size by 2037 and nearly tripling by 2050. But there is 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.
Beyond the largest economies, 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 4.5-5.5% pa over the period to 2050. Malaysia is also projected to grow at around 4% pa on average in the same period, which is higher than China’s projected average growth rate of around 3.5%.
Japanese growth is projected to be the slowest of all countries covered in total terms, driven in part by a steadily declining population; as a result it’s projected to fall from 4th to 7th place in the global GDP rankings over the period to 2050.
PwC also estimates what its projections would mean for shares of global GDP at PPPs. China’s share reaches 20% by 2030 but then levels off. The US’s share declines gradually from 16.3% now to only just over 13% by 2050, while India’s almost doubles from around 7% now to be more or less neck and neck with the US by the middle of the century in PPP terms (allowing for the uncertainty surrounding any such estimates looking that far ahead).
The EU’s overall share of world GDP is projected to decline from around 17% now to less than 12% by 2050. The UK’s share is projected to fall from 2.3% in 2014 to around 1.8% in 2050 as its growth rates, although healthy by G7 (group of seven leading industrialised countries) standards, cannot match those of the emerging markets.
PPPs vs MERs: PwC says that there is no single correct way to measure the relative size of economies at different stages of development. Depending on the purpose of the exercise, GDP at either market exchange rates (MERs) or purchasing power parity rates (PPPs) may be the most appropriate measure. In general, GDP at PPPs is a better indicator of average living standards or volumes of outputs or inputs because this correct for relative price differences, while GDP at MERs is a better measure of the relative total size of markets for businesses at a given point in time. However, historical evidence shows that MERs will generally, in the long run, tend to move up towards PPPs for emerging economies as their average income levels gradually narrow the gap with the current advanced economies. An econometric equation within the PwC long-term growth model that reflects this historical relationship forms the basis for the projections of GDP at MERs in the report. This also makes the common simplifying assumption that PPP exchange rates remain constant in real terms over time. Projections of MERs are subject to particularly high margins of uncertainty, however, which is why both the report and this media release focus primarily on projections of GDP at PPPs.
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