The UK is set to outgrow other G7 countries over the next few decades, finds a new report from PwC. So, is this down to Brexit, is it thanks to a more dynamic UK economy? Well the main reason is quite different.PwC has predicted average growth for the UK between now and 2050 of 1.9 per cent a year, quite possibly faster than any other G7 country. Then again, it also predicts that the global economy will double in size between now and 2042, growing at an average of 2.5 per cent.
In other words, the UK is expected to do better than its main rivals today, but compared to the rest of the world, worse than average.
And by 2050, PwC reckons that the UK will be the 10th biggest economy in the world – that’s by price purchasing parity, (PPP) by the way, and not by dollars. Right now, PwC has the UK in 9th place.
Those findings may strike you as odd, but when you measure GDP by PPP, you take into account how much you can buy for you bucks in each country. Measure UK GDP in dollars, for example, and the UK is the world’s fifth/sixth biggest economy, behind the US, China, Japan, Germany, and arguably France. Its economy, is for example, around three times bigger than the Indonesian economy.
But then, if you have ever been to Indonesia, you will know that things are cheap. Take that into account, and you get the PPP measure of GDP. And by the measure, the economies of Indonesia, Brazil, Russia and India are already bigger than the UK’s.
When it comes to international clout and appeal to business, its dollar GDP that counts, when it comes to working out how well off the people are, looking at PPP is more telling.
By 2030, PwC expects Indonesia to rise from 8th to 5th spot, behind China, the US, India, and Japan, and by 2050, expects Indonesia to be in fourth spot.
It expects Brazil to rise up the league too, up from 7th today, to 5th in 2050, (but with a blip in the middle, falling to 8th in 2030), and expects Mexico to rise from 11th today to 7th in 2050.
PwC expects France to fall from 10th place today to 12th in 2050, and Italy to fall from 12th to 21st spot.
On the other hand, Nigeria is expected to rise from 22nd to 14th spot, Egypt from 21st to 15th and Pakistan from 24th to 16th spot.
Take another look, and consider the countries that are expected to rise up the ladder and those that are falling.
It’s about population.
The four most populous countries in the world are China, India, Indonesia and the US. Brazil, Nigeria and Pakistan make up the next three slots. Bangladesh, which even in 2050, is expected to be well down the economic rankings is next, followed by Russia and Japan.
You can put it another way, and say by 2050, things will be getting closer to what you would expect, given population.
And across the developed world, the UK has pretty close to the best demographics for promoting growth.
It is not aging like most of the G7 is.
However, post-Brexit, and in 20 years’ time, it may be able to agree nice trade deals with the rapidly growing emerging markets as the EUs clout wanes.
John Hawksworth, chief economist at PwC, said: “Our relatively positive long-term growth projection for the UK is due to favourable demographic factors and a relatively flexible economy by European standards. However, developing successful trade and investment links with faster-growing emerging economies will be critical to achieving this, offsetting probable weaker trade links with the EU after Brexit.”
He continued: “After a year of major political shocks with the Brexit vote and the election of President Trump, it might seem brave to opine on economic prospects for 2017, let alone 2050. But a long-term view is crucial for considering areas like pensions, healthcare, energy and climate change, housing, transport and other infrastructure investment. By looking beyond unpredictable short-term economic and political cycles and focusing on fundamentals, long-term growth projections can actually be more reliable than short-term forecasts.
He added: "The global economy faces a number of challenges to prosperous economic growth in the long-term. Ageing populations and climate change require forward-thinking policy which equips the workforce to continue to make societal contributions later on in life and promotes sustainable development. Falling global trade growth, rising inequality and increasing global uncertainties are intensifying the need to create diversified economies which offer opportunities for everyone in a broad variety of industries.
“Emerging economies offer great opportunities for business – the numbers in our report make it clear that failure to engage with these markets means missing out on the bulk of economic growth we expect to see in the world economy between now and 2050. To succeed, businesses will need to adopt strategies with the right mix of flexibility and patience to ride out the short-term economic and political volatility that is a normal feature of emerging markets as they mature.”