Economist Intelligence Unit: Developing Economies Grow Stronger by 2050

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Macroeconomics

Long term forecasting is, in many people’s view, about as accurate as putting your finger in the air and taking a guess.

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Nevertheless, it is far from a fruitless exercise. If nothing else it makes us step back from the everyday pressures of business and look at the bigger picture, try to assess long-term trends and fundamental changes that are taking place that can largely pass us by on a day-to-day basis.

It also encourages us to look at our business and make judgements as to how well our current model would fit in a variety of future global scenarios. So reviewing the Economist Intelligence Unit’s latest report looking at the long-term forecast up to 2050 has much to commend it.

Emerging Markets Emerge

The report is available on download free from the EIU here and merely requires a registration. The report opens with an attention grabbing comparison of the top ten economies at market exchange rates by 2050 as predicted by the EIU.

Source: The Economist Intelligence Unit

Source: The Economist Intelligence Unit

Crucially faster growing emerging markets move up into the first , thrid and fourth slots as the old order, relatively speaking, falls back on slower growth. Demographics, of course, plays a part with aging populations in Europe and Japan limiting growth potential and the reverse in places such as India, Indonesia and Mexico driving growth in gross domestic product if challenging the ability of those countries to rapidly improve GDP per capita.

Asia Tops Growth

Regionally, Asia will rise to a little over 50% of global GDP, a trend that started in the last century with Japan and South Korea and has accelerated with China, India and Indonesia among others expansion in this.

Source: The Economist Intelligence Unit

Source: The Economist Intelligence Unit

This graph illustrates the rise of Asia as the focus of global growth that is so often mentioned in the media, but so challenging for small and medium enterprise western firms to re-position themselves to exploit.

Source: The Economist Intelligence Unit

Source: The Economist Intelligence Unit

On the topic of global influence, by 2050 China and India will, relatively speaking, both be larger than the next five economies below them. We can expect both countries to play a much greater role in global affairs both economically and on issues such as climate change and maybe even security – an area neither have shown more than limited regional interest in to date.

Source: The Economist Intelligence Unit

Source: The Economist Intelligence Unit

The EIU makes some profound observations on population growth, saying much of the global growth in recent decades has been driven by population growth. Long-term population estimates, however, reveal that growth in the global population is expected to see a dramatic decline from an average of 1.3% in the 1980-2014 period to 0.5% across the 2015-50 period.

Law of Large Numbers

The slowdown in the growth rate of the global working-age population will be even starker, with a drop to 0.3% in the 2015-50 period, compared with an average growth rate of 1.7% in the 1980-2014 period. For those countries, particularly in the Middle East and Africa, with still-rapidly rising populations there should be better growth prospects but this also represents a source of political instability if these regions cannot create employment and prosperity. Much will depend on the continuation of globalization and on the policies pursued by the specific countries concerned.

The Advantage of Being Advanced

For those countries with an already declining labor force the challenge will be to achieve growth by other means and to maintain social stability as the burden of taxation falls on a progressively smaller section of societies.

Source: The Economist Intelligence Unit

Source: The Economist Intelligence Unit

Advanced economies will, however, continue to represent very significant markets, with their residents continuing to enjoy some of the highest per capita incomes in the world even if, nationally, the country falls in the GDP rankings. Governments, and the populations that elect them, will be forced to reevaluate their place in the world and what role they should seek, indeed be able to, maintain. Arguably, it would be better to forge a more inclusive world order now then to have a change of roles forced on us by events over the coming decades.

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