By Daniel Hunter
The UK is predicted to drop to 11th place in rankings of the world’s largest economies by 2050 and the global financial crisis and its aftermath has accelerated the shift of the economic centre of gravity to China, India and other emerging economies, according to the latest update of PwC’s ‘The World in 2050’ series of reports.
The report finds that the emerging economies are set to grow much faster than the G7 over the next four decades. Figures for average growth in GDP in purchasing power parity (PPP) terms show Nigeria leading the way over the period from 2012 to 2050, followed by Vietnam, India, Indonesia, Malaysia and China. And in PPP terms, the E7 group of large emerging economies could overtake the G7 before 2020 and China overtake the US as early as 2017 on the same basis.
“Although we expect the UK to drop out of the top 10 largest economies by 2050, the projected average UK growth rate to 2050 of just over 2% is similar to France and stronger than for other large Western European economies such as Germany, Italy and Spain that face even bigger challenges than the UK from an ageing population and declining labour forces in the long run," John Hawksworth, chief economist at PwC, said.
"The global financial crisis has hit the G7 much harder than the E7 in the short term. And it has also caused downward revisions in the estimates of longer term trend growth in the G7 — particularly those economies in Europe and the US that had previously relied on excessive public and private borrowing to drive growth.”
Beyond the largest economies, the report argues that Malaysia has considerable long-term growth potential, while Poland could continue to outpace its Western European neighbours for some decades to come. These two economies were included in the analysis for the first time this year, with commentaries written by senior PwC economists in these countries.
More generally, the report highlights that it is not just the BRICs that have strong long-term growth potential. Other emerging economies such as Indonesia, Mexico, Turkey, Nigeria, Vietnam and South Africa also have good prospects if they can continue to pursue growth-friendly economic policies.
The report highlights the pressure on natural resources from rapid growth in emerging economies and also cites a number of sources that could derail emerging market growth such as:
• High fiscal deficits in India and Brazil
• Over-reliance on oil and gas revenues in Russia and Nigeria
• Rising income inequality leading to social tensions in China and other fast-growing economies
• Macroeconomic and financial instability in Vietnam.
“The shift in the global economic centre of gravity is clear; but there are still major challenges for the emerging economies to sustain their recent strong growth," John Hawksworth, chief economist at PwC, said.
"At the same time, there are huge opportunities for Western companies in the emerging markets — but also great competitive challenges from fast-growing emerging market companies.
“UK businesses are relatively strong in the kind of tradable services that may grow strongly in future decades due to rising demand from the BRICs and other emerging economies - such as creative industries, business and financial services, university education and healthcare/pharmaceuticals. So we should see the rise of these emerging markets as an opportunity to be grasped for UK business rather than a threat.”
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