2050 Economic Power by PricewaterhouseCoopers

Companies Should Seize Opportunities Posed By Major Shift In Power To Emerging Economies By 2050, Suggests PricewaterhouseCoopers Report Print-friendly version
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LONDON -- 3 MAR 2006 -- Established OECD economies should view the much-heralded shift in economic power to emerging countries such as India and China as an opportunity to boost trade rather than an economic death knell, says a PricewaterhouseCoopers report.

By the year 2050, what the reports calls the 'E7' economies (China, India, Brazil, Russia, Indonesia, Mexico and Turkey) will have outstripped the current G7 (US, Japan, Germany, UK, France, Italy and Canada) by between 25% when comparing GDP using market exchange rates to around 75% when using purchasing power parity (PPP) exchange rates (see note 1 for an explanation of measures used).

But this should create major new market opportunities, allowing companies in the established OECD economies to specialise in areas of comparative advantage, while their consumers benefit from low cost imports from the emerging economies – a 'win-win' outcome rather than 'one winner takes all', argues PricewaterhouseCoopers.

The report, entitled The World in 2050: How big will the emerging market economies get and how can the OECD compete?, reveals some potentially surprising conclusions. For example, as Table A shows, projections suggest that India has the potential to be the fastest-growing large economy in the world as we approach the mid-century, followed by Indonesia – both ahead of China due in particular to their less rapidly ageing populations.

Table A: Projected real growth in GDP and income per capita: 2005-50 (%pa) Country GDP in
US $ terms GDP in domestic currency or at PPPs GDP per capita at PPPs Working age population
India 7.6 5.2 4.3 0.9
Indonesia 7.3 4.8 4.2 0.4
China 6.3 3.9 3.8 -0.4
Turkey 5.6 4.2 3.4 0.6
Brazil 5.4 3.9 3.2 0.5
Mexico 4.8 3.9 3.3 0.4
Russia 4.6 2.7 3.3 -1.1
S. Korea 3.3 2.4 2.6 -0.9
Canada 2.6 2.6 1.9 0.2
Australia 2.6 2.7 2.0 0.4
US 2.4 2.4 1.8 0.4
Spain 2.3 2.2 2.2 -0.7
UK 1.9 2.2 2.0 0.0
France 1.9 2.2 2.1 -0.3
Italy 1.5 1.6 1.9 -0.9
Germany 1.5 1.8 1.9 -0.5
Japan 1.2 1.6 1.9 -0.9
Source: PricewaterhouseCoopers GDP growth estimates, working age population growth from the UN.

However, despite its projected marked growth slowdown thanks in particular to an expected decline in its working age population because of its earlier one child policy, China is set by 2050 to be a close second to the US as the world's largest economy at market exchange rates, and possibly around 40% larger at PPP rates. Average income levels in China will also catch up to some degree, but remain well below OECD levels.

The report's author John Hawksworth, Head of Macroeconomics at PricewaterhouseCoopers' UK firm, says:

"Despite the inevitable uncertainties when looking this far ahead, the overwhelming likelihood is that there will be a significant shift in world GDP shares from the G7 to the E7 by the middle of the century. But the enlargement of the global market should see a mutually beneficial increase in trade between the two economic groupings.

"Of course, there will still be a significant number of losers in the established OECD countries at both a corporate and individual level. Mass market manufacturers will suffer, and economies like China and India will also become increasingly competitive in tradable services sectors such as banking and other wholesale financial services. But OECD consumers should continue to gain from cheaper imports."

As can be seen from Table B below, the report concludes that, provided that these emerging economies maintain a policy environment conducive to continued rapid growth, by 2050:


The economies of Mexico, Brazil, Russia, Turkey and Indonesia could grow from only around 2-6% of the size of the US economy now to around 10-20%.
In contrast, most OECD economies – with the exception of Canada and Australia – are projected to have lost some ground relative to the US economy, due to slower working age population growth.
The Japanese economy is projected to be of comparable size to those of Brazil and Indonesia (having been overtaken earlier by China and India).
The German, UK and French economies are projected to be smaller than the Mexican economy and similar in size to that of Russia.
The Italian economy is projected to be of similar size to the Turkish economy.
Table B: Projected relative size of economies in 2005 and 2050 (US = 100) Country
(indices with US = 100) GDP at market exchange rates in US $ terms GDP in PPP term
2005 2050 2005 2050
US 100 100 100 100
Japan 39 23 32 23
Germany 23 15 20 15
China 18 94 76 143
UK 18 15 16 15
France 17 13 15 13
Italy 14 10 14 10
Spain 9 8 9 8
Canada 8 9 9 9
India 6 58 30 100
Korea 6 8 9 8
Mexico 6 17 9 17
Australia 5 6 5 6
Brazil 5 20 13 25
Russia 5 13 12 14
Turkey 3 10 5 10
Indonesia 2 19 7 19
Source: PricewaterhouseCoopers estimates (rounded to nearest percentage point)


ENDS

Notes to Editor:

An electronic copy of the full report, The World in 2050: How big will the emerging market economies get and how can the OECD compete? is available for download.
About the author: John Hawksworth is head of PricewaterhouseCoopers' Macroeconomics Unit in London and editor of our Economic Outlook publications. He is also the author of many other reports and articles on macroeconomic and public policy topics, and a regular media commentator on these issues. He has carried out economic consultancy assignment for a wide range of public and private sector organisations both in the UK and overseas over the past 20 years.
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