PricewaterhouseCoopers is making predictions about the global economy 33 years out when most of us can hardly predict what the global economy will look like tomorrow.
Acknowledging the brave move to create a report surmising what 2050 will hold considering the uncertainty Brexit and Donald Trump have injected into the mix, PwC said emerging economies will come to dominate the 21st Century.
“By 2050 we project China will be the largest economy in the world by a significant margin, while India could have edged past the U.S. into second place and Indonesia have risen to fourth place,” PwC chief economist John Hawksworth said in the recently released report. “We also think the world economy will more than double in size between now and 2050, far outstripping population growth.”
That’s, of course, barring any “sustained long-term retreat into protectionism” or “major global civilization-threatening catastrophes.”
What will 2050’s global economy look like?
For now, the world’s top 10 economies, in order of size, are: China, the U.S., India, Japan, Germany, Russia, Brazil, Indonesia, the U.K. and France. Over the next 30 plus years, however, that top 10 could look more like: China, India, the U.S., Indonesia, Brazil, Russia, Mexico, Japan, Germany and the U.K.
“By 2050, the E7 economies [China, India, Indonesia, Brazil, Russia, Mexico, Turkey] could have increased their share of world GDP from around 35 percent to almost 50 percent,” the report noted. “China could be the largest economy in the world, accounting for around 20 percent of world GDP in 2050.”
Sourcing in China has already gotten costly as labor rates rise, but India too could ultimately have brands and retailers turning elsewhere to manufacture more affordable product. Last year, U.S. GDP per capita was nearly nine times India’s, but by 2050 that gap will shrink and U.S. GDP per capita will only be three times that of India.
Which countries will see the greatest growth?
The U.S. and Europe will steadily lose ground to China and India, and Vietnam, India and Bangladesh will be three of the world’s fastest growing economies. Between now and 2050, PwC expects 5 percent average annual growth for Vietnam, India and Bangladesh.
“These countries will benefit from their youthful and fast growing working-age populations, boosting domestic demand and output,” the report noted. But, PwC added, “Growth in these countries is driven even more by real GDP per capita growth, suggesting capital investment and technological progress will deliver real labor productivity-enhancing benefits.”
To capitalize on that growth, however, these countries will need to keep things in order, continuing economic reform and educating their growing workforce to contribute to long-term growth.
What’s to come of stagnating global trade growth?
In 2016, world trade grew at just 2 percent, its slowest since the financial crisis in 2008-2009. Historically, trade often grew between 1.5 and 2 times the rate of the global economy, but since the financial crisis, trade growth has been lower than GDP growth, at an average of 3 percent per year compared to 3.2 percent for GDP, according to PwC.
Some of that could be owed to weak consumption leftover from the crisis, some of it to the slowdown in China and the resulting reduced global demand. However, PwC noted, China’s transition away from a manufacturing and export-driven economy and the increasing use of automation which has helped many manufacturers make their own inputs instead of importing them, could mean that global trade growth is settling in for a new, lower trajectory.
“The growth of the digital economy is changing the nature of globalization, shifting it from physical transportation to a digital set of orders, which has shortened global supply chains thanks to new manufacturing technologies such as 3D printers,” PwC wrote in the report.
And the currently increasing inability to negotiate, settle and implement trade deals, may not help to boost that trade growth trajectory.
“Globalization is also often associated with rising inequality…resulting in a lack of popular support for further trade agreements,” according to PwC. “This has bought protectionism back into the policy spotlight, as illustrated by the new U.S. administration’s preference to withdraw from the Trans-Pacific Partnership (TPP).” Progress has also been slow on the now likely stalled Transatlantic Trade and Investment Partnership (TTIP) between the U.S. and the EU.
Right now, the EU, U.S. and China hold a 56 percent share of world trade, while the rest of the world holds the other 44 percent. That means, according to PwC, that there’s potential for emerging markets to engage in regional trade agreements to help advance themselves, and governments should support the efforts by incentivizing businesses to compete in these new markets.
“For advanced economies, governments should continue to pursue mutually beneficial trade deals, including regional trade agreements, and encouraging emerging markets to engage,” according to PwC. “It will be important here that the new U.S. administration, while renegotiating trade deals it considers less favorable, does not retreat into the kind of protectionist shell that damaged world growth in the 1930s.”