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The World in 2050:

How will the global
economic order change?

February 2017
Contents

Summary Projected relative Projected real

size of economies GDP growth rates

Pg 3
1 Pg 5
2 Pg 14
3

Projected average Risks to growth Implications for

income levels policy and
business

4 5 6
Pg 19
4 Pg 22 Pg 25

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1. Summary

The World in 2050: How will the global economic order change? February 2017
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The World in 2050: 5 key messages

1 2 3 4 5

Shifts in
The world global Drivers of Policy Business
economy economic global growth implications implications
power

The world The E7 could Emerging To realise this Rising incomes in

economy could account for
more than c.50% of world
double in size by GDP by 2050, up
2050, assuming from 35% today. Vietnam, India and
broadly growth- Emerging
friendly policies and economies could be
no global six of the largest
catastrophes. seven economies in
the world by 2050
economies will potential, emerging markets
drive global governments need to will open up great
growth. implement structural opportunities for
reforms to improve businesses with
Bangladesh could macroeconomic sufficiently
be three of the stability, diversify flexible and
fastest growing their economies and patient strategies
larger economies develop more for these fast
over this period. effective evolving markets.
institutions.

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2. Projected relative size of economies

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 How have we modelled long-term GDP trends?
Our model ignores short-term cyclical variations, focusing instead on long-term supply side fundamentals.
We assume no major global catastrophes or political shifts that cut economies off from the flow of new technologies and ideas.
We take the US as representing the global frontier in terms of technology and productivity that other economies
seek to catch up with over time. US labour productivity growth is assumed to grow at a trend rate of 1.5% per annum.
We use a robust model where GDP is driven by four main supply-side factors, using a Cobb-Douglas production function that
is a standard approach in the academic economic literature and widely used by the IMF, OECD and others in long-term growth
studies.

Investment in Catch-up with US

Working-age Investment in
human capital total factor
population growth physical capital
(education levels) productivity levels

GDP in PPPs vs MERs What has changed since our February

We focus on GDP at purchasing power parity (PPPs), but also
include GDP at market exchange rates (MERs).
The difference between GDP at PPP and MER estimates reflect
that price levels in lower income countries are generally
significantly lower than in advanced economies based on current
market exchange rates.
This means emerging markets tend to have significantly higher
GDP when measured at PPPs than at MERS.
In the long-run, the difference between the two estimates should
decline as faster emerging market growth pushes up price levels.
This is a very gradual process, however, so full price convergence
will still not be complete by 2050 in most emerging markets.
2015 report?
We have made two main changes to our model since 2015:
1. All historical data has been updated to reflect the latest available
data. Our detailed assumptions on key model inputs have been
revised to reflect actual trends over the past two years.
2. We have reduced the assumed US trend labour productivity
growth rate from 2% to 1.5% per annum, reflecting accumulating
evidence that potential growth has fallen in the US. This can be
attributed to factors including the USs ageing population, a
plateau of educational attainment and rising household and
government deficits generating financial instability.

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The shift in global economic power from the G7 to the seven largest
emerging economies (the E7) will continue in the coming decades

In 1995, the E7 was only about half the size of the G7 in PPP Relative size of G7 and E7 economies in 2016
terms. By 2015, the two groups were around the same size. and 2050
1 Looking ahead, the E7 could be around double the size 160,000
of the G7 by 2040 (in PPP terms).

140,000

GDP in PPPs and MERs (constant, 2016 US$ bn)

By 2050, we project that the G7s share of world GDP will fall to
2 only around 20%, while the E7 will increase their share to
120,000

almost 50% of global GDP at PPPs by 2050.

100,000

80,000
China is already the largest economy in PPP terms, having
3 overtaken the US in 2014. We project China could also be
the largest economy in MER terms before 2030. 60,000

40,000
India will also drive the shift in global economic power and
4 could overtake the US to be the worlds second largest
20,000
economy in PPP terms by 2050.

0
2016 PPP 2050 PPP 2016 MER 2050 MER

Emerging economies are projected to dominate the list of the

5 largest economies in the long run, with Indonesia, Brazil, G7 E7
Russia and Mexico taking 4th to 7th places in 2050. G7 = US, Japan, Germany, UK, France, Italy and Canada

E7 = China, India, Brazil, Russia, Indonesia, Mexico and Turkey

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US and Europe will steadily lose ground relative to the Asian giants

Europes share of the world economy

Projected GDP (PPP terms) in 2050 at PPPs could fall from around
15% to 9% over the next 34 years.
Increasing
GDP in PPPs

Chinas share of world

GDP at PPPs could
increase to around
20% by 2050.

The US could fall to third

place in the global GDP
rankings by 2050, as its
share of world GDP at PPPs
falls to only around 12%.

India could increase

Brazil and Mexico
its share of world
could be larger than
GDP at PPPs by 8
Japan and Germany
percentage points to
by 2050.
15% by 2050.

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Emerging economies will dominate the list of the worlds 10 largest
economies and increase their share of world GDP to almost 50% by 2050
Rankings of GDP at PPPs Share of world GDP at PPPs

2016 2050 100%

China 1 1 China 90%

Rest of the Rest of the
world world
US 2 2 India 80%

India 3 3 US 70%

Japan 4 4 Indonesia 60%

Germany 5 5 Brazil 50% E7

E7
Russia 6 6 Russia 40%

Brazil 7 7 Mexico 30%

Indonesia 8 8 Japan 20%

G7
UK 9 9 Germany 10% G7

France 10 10 UK 0%
2016 2050

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By 2050, the E7 are projected to be significantly larger than the G7 even at
market exchange rates (MERs), driven primarily by the continued rise of
China and India
140,000

120,000

E7 120%
GDP (US$ bn at constant 2016 values)

100,000 larger than

G7 E7 67%
larger than
80,000
G7

60,000

China &
India China &
40,000 India

20,000
China & US US
US India China &
US
India
0
2016 PPP 2050 PPP 2016 MER 2050 MER

US China & India Other G7 Other E7

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 When looking at GDP in MER terms, the E7 still lags behind the G7 due to
the E7s lower average price levels, but could overtake the G7 by 2030

Projected growth paths in PPP terms Projected growth paths in MER terms

160,000 120,000

140,000

GDP in MERs (constant, 2016 US$ bn)

GDP in PPPs (constant, 2016 US$ bn)

E7 100,000
E7
120,000

80,000
100,000

G7
80,000 60,000
G7
60,000
40,000

40,000

20,000
20,000

0
0
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050

2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
The World in 2050: How will the global economic order change? February 2017
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The rise of China and, in the long run, India will gradually push down the
US and EU27 shares of world GDP at PPPs (broadly similar trends are
projected for GDP shares at MERs, but China and India are starting from
lower levels on that measure)
25%

China
Projected share of world GDP in PPPs

20%

India
15%

US

10%
EU27

5%

0%
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

The World in 2050: How will the global economic order change? February 2017
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We expect to see some other emerging markets take centre stage by 2050,
although this depends on long-term progress on structural reforms

20th
19th
14th
Biggest fallers
(GDP at PPPs)

32nd 28th 22nd

Vietnam Philippines Nigeria Australia Italy Spain

19th 12th 15th

Biggest risers
(GDP at PPPs) 28th
21st
26th

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3. Projected real GDP growth rates

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We expect the shifts in global economic power we have seen since
2000 to continue in most cases in future decades

Correlation between historical and projected

Large emerging market economies will continue to be GDP growth at PPPs
key drivers of global growth, as their lower initial levels of
1 economic development provide more opportunities for catch- 6%
up with current advanced economies like the G7.

Projected average annual GDP growth in PPPs (2016-

Vietnam
5% India
The top 15 fastest growing economies over the next 34 Bangladesh
2 years will all be developing and emerging market
economies according to our projections. 4% Nigeria

Mexico Indonesia

2050)
China
Vietnam, India and Bangladesh have the potential to be
3%
3 the fastest growing economies, with annual average growth Brazil Turkey
of around 5% over the period to 2050, but Chinese growth will
slow as its population ages and its economy matures. UK
Russia
2% France Canada

US
E7 growth could average around 3.5% per annum Italy
4 between 2016 and 2050, compared to c.1.5% for the G7. 1% Germany
Japan

0%
Population growth will be a key driver of GDP growth in 0% 2% 4% 6% 8% 10%
5 many emerging markets, such as Nigeria, Pakistan and India.
But a key challenge will be too create enough jobs in these Average annual GDP growth in PPPs (2000-2015)
economies for their young people.

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Annual global economic growth is projected to average around 2.6% over
the next 34 years, slowing down over time as emerging markets mature and
populations age in advanced and some emerging economies (e.g. China)
7%
3.5%
Average PPP per capita growth p.a. (2016-2050)

6%

5%
2.7%
2.5%
4%
2.4%

3%

2%

1%

0%

-1%
-2% 0% 2% 4% 6% 8% 10%
Average PPP per capita growth p.a. (2000-2015)

2016-2020 2021-2030 2031-2040 2041-2050

The World in 2050: How will the global economic order change? February 2017
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Population growth will support growth in most emerging markets, but
ageing populations could be a drag on growth in advanced economies and
emerging markets like China and Russia (unless people work for longer)
Real GDP growth broken down into:
1. Average population growth; and
2. Average growth in GDP per capita, which is closely related to labour productivity growth

6%
Average real GDP growth p.a. (2016-2050)

5%

4%

3%

2%

1%

0%

-1%

Average Pop Growth p.a % Average Real Growth per capita p.a % Average GDP growth p.a. (in domestic currency)

The World in 2050: How will the global economic order change? February 2017
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China and India are projected to continue their current strong growth rates
to at least 2020, before slowing down progressively in later decades as they
mature (as happened to Japan, South Korea and other earlier emerging
economies in previous decades)
8%
Average annual growth in GDP in PPPs

7%

6%

5%

4%

3%

2%

1%

0%
Brazil Russia India China US UK EU27 World

2016 - 2020 2021 - 2030 2031 - 2040 2041 - 2050

The World in 2050: How will the global economic order change? February 2017
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4. Projected average income levels

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Average incomes are likely to remain lower in emerging markets than the
G7 even in 2050, but they should close a significant amount of the gap by
then (e.g. Chinas average real income level in 2050 similar to UK today)

With the possible exception of Italy, all of the G7

GDP per capita is on the rise in the E7
continue to sit above the E7 in terms of GDP
1 per capita in 2050. Russian average income is

GDP per capita (PPPs, 000s, constant 2016 US$)

100
projected to be broadly on par with Italy by that time.
90

The largest economy in the world in 2050, China, 80

2 only achieves a middling rank in terms of GDP
per capita (but still similar to the UKs level today). 70

60
Despite overtaking the US by 2050 in total GDP at PPP
terms, India ranks only 28thof of the 32 countries 50
3 in our study in terms of GDP per capita in
2050. Indias average real income level then might be 40
similar to that in Russia today.
30

China and India are closing the gap with the top. In 20
2016, US GDP per capita was almost 9 times that of
4 Indias. By 2050, it may be only around 3 times 10
higher than in India (and twice Chinese levels).
0

While population growth will be a key driver of GDP

growth in emerging markets, it can have partly
5 offsetting effects on average income growth., 2016 2050
particularly if job creation is constrained.

The World in 2050: How will the global economic order change? February 2017
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In contrast to total GDP, we do not see such a marked shift towards Asia by
2050 in terms of relative levels of average GDP per capita
Negative population
growth in Japan, Russia and most of Europe
could help keep average incomes relatively higher as
labour shortages arise

Increasing GDP
per capita
The US continues sit
the highest of the G7
in our rankings of GDP
per capita in 2050

Nigeria, Pakistan and India will

experience some of the greatest population
growth to 2050, but growth in average
GDP per capita are projected to be
relatively less strong in these economies

The World in 2050: How will the global economic order change? February 2017
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5. Risks to growth

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A wide range of risks could see growth fall below projected potential rates,
particularly if there is a widespread retreat from globalisation although
there could also be offsetting upside possibilities
We consider three scenarios, each one building on the For the most severe downside scenario (3), the size of
assumptions made in the previous one to create a the world economy in 2050 could be around 20%
cumulative set of three possible downside risks however, smaller than in our main scenario
there could also be upside possibilities for all three variables
300,000

Trend US labour productivity growth decreases by a

1 further 0.5 percentage points, from 1.5% to 1% per annum,

GDP in PPPs (constant, 2016 US$ bn)

representing a deceleration in global technological progress
within the structure of our model 250,000

Convergence speeds for total factor productivity (TFP) 200,000

2 levels reduce by half (e.g. due to rising protectionism) and

trend annual US labour productivity growth decreases by 0.5
percentage points as in scenario 1

150,000

Investment to GDP ratios decrease by a quarter,

3 convergence speeds (for TFP levels) decrease by half, and

annual trend US labour productivity growth decreases by 0.5
100,000

percentage points.

Main Scenario 1 Scenario 2 Scenario 3

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Reducing US labour productivity has a larger impact on G7 growth, while
the E7 are more sensitive to reduced TFP convergence speeds

3.5%
Average annual GDP growth rate (2016-2050)

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%
G7 E7 World

Main scenario Scenario 1 Scenario 2 Scenario 3

The World in 2050: How will the global economic order change? February 2017
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6. Implications for public policy and
business

The World in 2050: How will the global economic order change? February 2017
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 Developing stable, high quality institutions will be critical to emerging
markets realising their full economic potential. Businesses need to develop
a global ecosystem of suppliers and partners across these markets.

For governments

I would particularly emphasise the critical importance of the quality of institutions in long-term economic success or failure. If we
look at the rise of the West, growth was supported by political systems that invested in public goods (including health and
education as well as physical infrastructure) and provided legal systems that protected property rights and provided a conducive
environment for long-term business investment.

For businesses

There is no silver bullet, but it does put more of a premium than ever on having a business strategy that is dynamic enough to
respond to both the opportunities and challenges that emerging markets present. For large companies this typically involves
creating a global ecosystem of suppliers and partners to support development and marketing of products and services, focusing on
capturing most of the value in their ecosystem.

- Professor Michael G. Jacobides (LBS)

The World in 2050: How will the global economic order change? February 2017
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Diversification, public sector reform and creating a business environment
that encourages innovation will be critical to sustainable long-term growth
Views of senior PwC experts on China, Nigeria, Colombia, Poland and Turkey

Nigerias potential advantages for future growth include a

Looking ahead, China still has great potential for growth. Its
large consumer market, a strategic geographic location as a
urbanisation process is still at a relatively early stage, and its
hub for Africa, and a young and entrepreneurial population.
services sector has a lot of scope to catch up with economies
The first step in harnessing this opportunity requires
like the US. Reform of state-owned enterprises, if properly
deliberate efforts to improve value-adding activity in the
handled, could shatter monopolies and create new business
non-oil economy, particularly in agriculture and services.
opportunities worth trillions of dollars.
- Dr. Andrew S. Nevin, Chief Economist, PwC
- Allan Zhang, Chief Economist, PwC China Nigeria

Growth in Colombia over recent years has been driven by the financial services industry and the social services sector. The
Colombian government has also been actively promoting the agribusiness sector, as well as the industrial manufacturing sector
in order to promote long-term economic growth in light of falling commodity prices.
- Gustavo Fernando Dreispiel, Senior Partner, PwC Colombia

Polands new government announced a new programme of
economic development aimed at gradually shifting the
paradigm of economic development from wage
competitiveness to innovation and international expansion of
Polish companies.
- Mateusz Walewski, Senior Economist, PwC Poland
If Turkey can overcome its short-term political
uncertainties and focus its attention on reforms in all needed
areas, the country can provide great long-term business
opportunities with its favourable demographics and
geopolitical position.
- Baar Yldrm, Chief Economist, PwC Turkey

The World in 2050: How will the global economic order change? February 2017
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PwC contacts, services and insights

The World in 2050: How will the global economic order change? February 2017
PwC 28
For more information on this study, please contact John or Hannah
from our Economics & Policy team in London

John Hawksworth Hannah Audino

Chief Economist, London Economist, London
E: john.c.hawksworth@pwc.com E: hannah.e.audino@pwc.com

For related PwC services and insights please see:

http://www.pwc.co.uk/services/economics-policy.html

http://www.pwc.co.uk/issues/megatrends.html

http://www.pwc.com/gx/en/issues/high-growth-markets.html

http://www.pwc.com/gx/en/ceo-agenda/ceosurvey/2017/gb

http://www.strategyand.pwc.com/

http://www.psrc.pwc.com/

The World in 2050: How will the global economic order change? February 2017
PwC 29
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