Despite a projected slowdown in Chinese growth after around 2020, the global economic power shift away from the established advanced economies in North America, Western Europe and Japan, will continue over the next 35 years, according to the latest report from PwC economists, The World in 2050: Will the shift in global economic power continue?
PwC Economics Director Chris Money says, “New Zealand’s future truly lies with China and our forecasts reinforce the importance of New Zealand’s focus on Pacific Rim trade deals, with China, Indonesia, Mexico and Russia, forecast to be amongst the fastest growing economies to 2050.
“Currently, China is equal with the US in purchasing power parity (US$17 billion each) but by 2050, China’s GDP in purchasing power parity (PPP) terms will treble to US$60 billion, which is 25% higher than the US, and more than three times the combined GDP (in PPP terms) of the EU.
“Trade between the fastest growing countries presents real opportunities for New Zealand as a transit point for goods and services both by air and sea. Links between South America and the fast-growing block of China, Indonesia and India present significant opportunities for us as a trans-shipment destination,” says Mr Money.
India has the potential to sustain its higher growth rate for longer and become a US$10 trillion economy by around 2020 in purchasing power (PPP) terms, or around 2035 at market exchange rates. But this relies on India making sustained progress on infrastructure investment, institutional reforms and boosting education levels across the whole population.
“The importance of New Zealand’s free trade discussions with India are underlined by this forecast as the fastest growing of our largest trading partners and set to become the second largest economy in the world by 2050,”concludes Mr Money.
The report presents long-term projections of potential GDP growth up to 2050 for 32 of the largest economies in the world, covering 84% of total global GDP and indicates that the world economy is projected to grow at an average of just over 3% per annum from 2014-50 – doubling in size by 2037 and nearly tripling by 2050. But there’s likely to be a slowdown in global growth after 2020, as the rate of expansion in China and some other major emerging economies moderates to a more sustainable long-term rate, and as working age population growth slows in many large economies.
There are different ways of comparing the size of economies, but the report projects that China will be the largest economy by 2030 on any measure. However, its growth rate is expected to slow markedly after around 2020 as its population ages, its high investment rate runs into diminishing marginal returns and it needs to rely more on innovation than copying to boost productivity. Eventual reversion to the global average has been common for past high growth economies such as Japan and South Korea and we expect China to follow suit.
