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Thursday, October 09, 2003

Dreaming The Future

Matt has an interesting post over at Fistful of Euros. He asks what is likely to happen to the relative balance of economic power in the world between now and 2050 as a result of changing world demography. The origin of the post, a Global Economics Paper from Goldman Sachs, 'Dreaming the BRICS' (Brazil, Russia, India, China). I haven't had time to read the article itself yet, and I don't really go for this long term speculation - we still don't know all that much about what the world will look like in 2005, but Matt's comments are to the point and interesting. BTW, the big faux pas is to include Russia in the list, they clearly have missed something here, since Russia's population is going in the direction of meltdown, and I imagine its GDP is headed down the same road:

By 2050 Western Europe could be an economic irrelevancy, with its four leading economies, the UK, Germany, France and Italy (note the order…) enjoying a combined output of less than half India’s and a third of China’s. Both Brazil and Russia will be twice as large as any single Western European economy.

This is the implication of a research report, ‘Dreaming with the BRICs’ released by US investment bank Goldman Sachs. The report notes that on what it calls reasonable demographic and economic assumptions, the BRICS (Brazil, Russia, India and China) will have a combined GDP larger than the G6 (US, Japan, Germany, the UK and France) by 2050, when China will be the largest economy in the world (having overtaken the US in 2041). As early as 2009 the report expects the annual increase in dollar GDP of the BRICs to outstrip that of the G6.

The growth in relative economic power comes from three sources. First the report expects productivity growth in the BRICS to outstrip the G6 as they ‘catch-up’ with the leading economies. Second demographics are in their favour (with the partial exception of Russia) as their working-age populations continue to grow quickly. Finally, and importantly, the report expects their exchange rates to appreciate, boosting GDP when measured in US dollars.

The hurt feelings of Americas and West Europeans, used to being in charge, may be soothed by the fact they’ll still be richer than their Chinese or Indian cousins, given in terms of GDP per capita, the G6 economies will maintain a lead, though it will shrink. By 2050 Chinese per capita income is forecast to be 37% of the US level, though it will be over 50% of the UK level and over 60% of French and German. In any case this only suggests that further catch-up (and hence in terms of overall GDP, a larger lead) is possible.

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