Shift of global economic power to emerging economies set to continue in long run, with India, Indonesia and Vietnam among star performers (2024)

Latest PwC report projects that for GDP measured at purchasing power parities (PPPs):

• World economy could double in size by 2042
• China has already overtaken the US to be largest economy based on GDP in PPP terms, and could be the largest valued at market exchange rates before 2030
• India could overtake the US by 2050 to go into 2^ndplace and Indonesia could move into 4^thplace by 2050, overtaking advanced economies like Japan and Germany
• By 2050, six of the seven largest economies in the world could be emerging markets
• Vietnam could be the world’s fastest growing large economy over the period to 2050, rising to 20^thin the global GDP rankings by that date
• The EU27’s share of world GDP could fall to below 10% by 2050
• UK could grow faster than the EU27 average in the long run if it can remain open to trade, investment and talented people after Brexit
• Turkey could overtake Italy by 2030 if it can overcome current political instability and make progress on economic reforms
• Nigeria has potential to rise up the global GDP rankings, but only if it can diversify its economy and improve governance standards and infrastructure
• Colombia and Poland have potential to be the fastest growing large economies in their respective regions – Latin America and the EU.

The long-term global economic power shift away from the established advanced economies is set to continue over the period to 2050, as emerging market countries continue to boost their share of world GDP in the long run despite recent mixed performance in some of these economies.

This is one of the key findings from the latest report from PwC economists on the theme of the World in 2050: The long view: how will the global economic order change by 2050? This presents projections of potential GDP growth up to 2050 for 32 of the largest economies in the world, which together account for around 85% of global GDP. These projections are based on the latest update of a detailed long-term global growth model first developed by PwC in 2006.

The report projects that the world economy could double in size by 2042, growing at an annual average real rate of around 2.5% between 2016 and 2050. This growth will be driven largely by emerging market and developing countries, with the E7 economies of Brazil, China, India, Indonesia, Mexico, Russia and Turkey growing at an annual average rate of around 3.5% over the next 34 years, compared to only around 1.6% for the advanced G7 nations of Canada, France, Germany, Italy, Japan, the UK and the US.

When looking at GDP measured at market exchange rates (MER), there is not quite such a radical shift in global economic power. But China still emerges as the largest economy in the world before 2030 and India is still clearly the third largest in the world by 2050.

But the spotlight will certainly be on the newer emerging markets as they take centre stage. By 2050, Indonesia and Mexico are projected to be larger than Japan, Germany, the UK or France, while Turkey could overtake Italy. In terms of growth, Vietnam, India and Bangladesh could be the fastest growing economies over the period to 2050, averaging growth of around 5% per year as illustrated in Figure 1, which also shows how growth breaks down between population and GDP per capita.

Nigeria has the potential to move eight places up the GDP rankings to 14^th by 2050, but it will only realise this potential if it can diversify its economy away from oil and strengthen its institutions and infrastructure.

Colombia and Poland also exhibit great potential, and are projected to be the fastest growing large economies in their respective regions, Latin America and the EU (though Turkey is projected to grow faster if we consider a wider definition of Europe).

Average incomes

One bit of good news for today’s advanced economies is that they will continue to have higher average incomes – with the possible exception of Italy, all of the G7 continue to sit above the E7 in the rankings of GDP per capita in 2050. Emerging markets are projected close the income gap gradually over time, but full convergence of income levels across the world is likely to take until well beyond 2050.

China achieves a middling average income level by 2050 (see Map 1), while India remains in the lower half of the income range given its starting point, despite relative high projected growth over time. This illustrates that while strong population growth can be a key driver of total GDP growth , it will take much longer to eliminate differences in average income levels.

Notes:

1. PPPs vs MERs: 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 corrects 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. But Appendix B in the full report also shows projections for GDP at MERs to 2050 for the 32 economies in the study.
2. A copy of the full report The long view: how will the global economic order change by 2050? will be published on 7^th February 2017 at http://www.pwc.com/world2050
3. This report is part of PwC’s wider research programme on the megatrends shaping global economic and business development. More details can be found here: http://www.pwc.co.uk/issues/megatrends/index.jhtml
4. More details on business strategies for emerging markets can be found in reports by the PwC Growth Markets Centre, which are available from: http://www.pwc.com/gx/en/growth-markets-centre/index.jhtml

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