PWC: Global economic centre of gravity shifts, but even emerging economies face growth challenges

These are just two findings from the latest World in 2050 report published by PwC’s macroeconomics team.

The original PwC ‘World in 2050’ study in 2006 covered the 17 largest economies: the G7 (France, Germany, Italy, Japan, the UK, the US and Canada) plus Spain, Australia and South Korea; and the E7 (Brazil, Russia, India, China, Indonesia, Mexico and Turkey. The extended 2013 study – titled World in 2050

The BRICs and Beyond: Prospects, challenges and opportunities- also includes Vietnam, Nigeria, South Africa, Malaysia, Poland, Saudi Arabia and Argentina.

The report concludes 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 (see note 1) show Nigeria leading the way over the period from 2012 to 2050, followed by Vietnam, India, Indonesia, Malaysia, China, Saudi Arabia and South Africa.

"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”, stated Vasile Iuga, Country Managing Partner, PwC Romania.

This means that, in PPP terms, the E7 could overtake the G7 before 2020; and by 2050 China, the US and India could be by far the largest economies – with a big gap to Brazil in fourth place, ahead of Japan.

And by the same time, Russia, Mexico and Indonesia could be bigger than Germany or the UK; Turkey could overtake Italy; and Nigeria could rise up the league table, as could Vietnam and South Africa in the longer term.

Beyond the largest economies, Malaysia has considerable long-term growth potential, while Poland could continue to outpace its Western European neighbours for some decades to come.

The table below illustrates the changing league positions in world GDP at PPPs – selected countries are marked in bold to highlight notable changes in rankings over time.

Actual and projected top 20 economies ranked based on GDP in PPP terms

Source: World Bank estimates for 2011, PwC estimates for 2030 and 2050

But what are the risks that could derail emerging market growth? The PwC report cites a number of potential sources of macroeconomic and political instability, 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 report also highlights the pressure on natural resources from rapid growth in emerging economies, including the increasing difficulty of keeping global warming to no more than 2?C. While new unconventional energy sources such as shale gas were reducing fears of running out of fossil fuels, the dangers associated with more volatile global climate patterns only seem likely to increase over the next four decades based on the projections in the report.

“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. At the same time, there are huge opportunities for Romanian companies in the emerging markets – but also great competitive challenges from fast-growing emerging market companies”, concluded Vasile Iuga.

Notes:

1.       There is no single right way to measure the relative size of emerging economies as compared to the established OECD economies. Depending on the purpose of the exercise, GDP at either market exchange rates 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, while GDP at market exchange rates is a better measure of the size of markets for OECD exporters and investors operating in hard currencies at any given time.

2.       A copy of the World in 2050 The BRICs and Beyond: Prospects, challenges and opportunitiesreport can be found at http://www.pwc.com/world2050

About PwC

PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with more than 180,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/ro

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.