Concluding our four-part review of HSBC’s long-term crystal ball-gazing report, “The World in 2050,” we move onto the markets probably most interesting to readers, namely Asia and the West. (Read Parts One, Two and Three.)
By the West, we mean North America, Japan and Europe — the established old world — although, as we shall see, prospects for growth in coming decades vary across this area. Briefly reviewing the criteria HSBC’s analysts used helps us clarify why some of the countries about to be discussed do better than others.
The central plank of the report’s argument is that demographics will have a fundamental impact on the potential for countries’ GDP growth between now and 2050, but that fundamentals such as rule of law and quality of education will either support or reduce each country’s ability to reach their potential, depending on how well developed they are across a range of infrastructureâ€ factors.
The first conclusion is that although Europe and Japan will have deteriorating demographics â€“ contracting populations and an aging workforce â€“ they will become less wealthy only relative to rising stars elsewhere. Starting from a high base, Western countries, the US included, will have to rely on high levels of education, strong rule of law and democratic institutions supporting innovation and creativity in order to create growth.
Coming as they do from a low base, the likes of the Philippines and Pakistan have the potential for the fastest rates of growth; where the former trumps the latter is in superior levels of education and rule of law, adding strong fundamentals to a rising population. Pakistan is expected to have the sixth-largest population in the world by 2050 — in itself likely to create significant country GDP growth — but raising questions about employment and social cohesion in a country with poor rule of law, corruption and poor education.
The Philippines’ fast-growing population will contribute to rapid growth and, like India (whose population is expected to overtake China in coming decades), good levels of education, rule of law and democracy should see average rates of growth in the region of 7 percent annually. Indeed, after China and India, the Philippines is expected to have the fastest growth in the world up to the middle of the century. Others include Malaysia, Bangladesh and Central Asian states such as Uzbekistan, Kazakhstan and Turkmenistan.
Ukraine also features in the fast growth category, not because of a rising population (it’s actually expected, Russia-like, to decline from 45 million to 36 million), but because of high levels of education and current relatively low base, allowing many decades of copy-and-paste development merely doing what more sophisticated economies already do well, thereby creating easy wins.
China continues to grow at a rapid pace, although the pace is expected to slow beyond 2020 as the demographic drag starts to hinder overall GDP growth. Nevertheless, the bank still expects average GDP growth of more than 5 percent per year for the next 40 years, ensuring both Asian giants remain major drivers of global growth for the first half of this century.
Growth in Europe, however, will come more from the Eastern European states that enjoy similar levels of education to Western Europe, but are starting from a lower base. Indeed, the highest rates are likely to come from some of the smallest economies such as Serbia, Bosnia, Romania and Ukraine.
What HSBC’s analysis explicitly does not include is the impact of natural resources. Many of the developing countries covered, such as Brazil, Peru, Ukraine, Nigeria, Angola, etc., are blessed with abundant iron ore, copper, coal, oil, natural gas and other resources, which alone will generate substantial growth opportunities.
Brazil, for example, enjoys a positive balance of payments in spite of a horribly strong currency because of its iron ore, timber and other natural resource exports. The tax take generated allows governments, if they so choose, to invest in education for the longer term; although, as we have seen with Nigeria, such largesse is not automatically invested wisely.
China’s massive capital investment in industry and infrastructure has been criticised by many as, at times, a wasteful application of capital; but it has resulted in China becoming the industrial powerhouse of the world — a position it is not going to relinquish anytime soon.