Would you believe China, India, Brazil, Russia, Indonesia, Mexico and Turkey? That's the prediction of John Hawksworth, head of macroeconomics for PricewaterhouseCoopers.
If you've been stuck behind an oxen-driven cart on a single-lane "highway" en route to Bangalore, regularly listen to static on the line when dialling Jakarta or have been pick-pocketed in Istanbul you might be initially sceptical. But it's a prediction with some real-time reality to it.
Let's start with the forecast û Hawksworth argues that by 2050, the 17 largest economies in the world in purchasing power parity (PPP) terms will be the current G7 (US, Japan, Germany, UK, France, Italy and Canada), plus Spain, Australia and South Korea, and the seven largest emerging market economies, which he refers to collectively as the "E7" (China, India, Brazil, Russia, Indonesia, Mexico and Turkey).
He reckons that the E7 economies will by 2050 be around 25% larger than the current G7 when measured in dollar terms at market exchange rates, or around 75% larger in PPP terms. Consider that the E7 is currently only around 20% of the size of the G7 at market exchange rates and around 75% of its size in PPP terms.
Hawksworth also forecasts that India has the potential to be the fastest growing large economy in the world over the period to 2050, with a GDP at the end of this period of close to 60% of that of the US at market exchange rates, or of similar size to the US in PPP terms. China - despite a projected growth slowdown thanks to significant declines in its working age populations between 2005 and 2050 - is projected to be around 95% the size of the US at market exchange rates by 2050 or around 40% larger in PPP terms.
Meanwhile, the other economies will also be significant if not singular powerhouses. Hawksworth expects Brazil's economy will be similar in size to Japan's by 2050 at market exchange rates and slightly larger in PPP terms, but still only around 20-25% of the size of the US economy; Indonesia and Mexico will have larger economies than either Germany or the UK by 2050 (even at market exchange rates); and Russia will grow significantly more slowly (because like China it's working age population is projected to sharply decline), but would still be of similar size to France by 2050 at either market exchange rates or PPPs. Finally, Turkey's growth prospects are positive thanks to its younger population, therefore he forecasts it will be be of similar size to Italy by 2050 at both market exchange rates and in PPP terms.
When chatting with Hawksworth, he conceded that political and socio-religious instability could throw some of these projections off; and that India and China are the countries heÆs most bullish on. But he says part of the objective of the paper is to "get the message across that there are more opportunities than threats."
Hawksworth writes: "While the G7 and other established Organisation for Economic Co-operation and Development (OECD) countries will almost inevitably see their relative GDP shares decline (although their per capita incomes will remain much higher than those in emerging markets), the rise of the E7 economies should boost average OECD income levels in absolute terms through creating major new market opportunities. This larger global market should allow OECD companies to specialise more closely in their areas of comparative advantage, both at home and overseas, while OECD consumers continue to benefit from low cost imports from the E7 and other emerging economies. Trade between the E7 and the G7 should therefore be seen as a mutually beneficial process, not a zero sum competitive game.ö
China has certainly been placed into a zero-sum competition pigeonhole by many US politicians - witness the pressures to revalue the renminbi, trade sanctions and failed mergers and acquisition deals thanks to protectionism. And Turkey has been jumping more hurdles than many other nations in its efforts to join the European Union.
Plus, to be fair to Hawksworth, unlike several of his peers who seem to focus only on the chief executives or the minimum-wage workers in the West, he does look at the impact on multiple income levels.
He writes: ôWhile the net effect of the rise of the E7 should be beneficial for the OECD economies overall, there will be significant numbers of losers at both a corporate and individual level. These losers may not outnumber the winners but could be more politically vocal in their opposition to globalisation. Mass market manufacturers will tend to suffer, both in low tech and increasingly in hi-tech sectors, and economies like China and India will also become increasingly competitive in tradable services sectors such as banking and other wholesale financial services. There may also be a tendency for income inequalities to increase within the OECD economies, with global star performers doing well, but low and medium-skilled workers facing an increasing squeeze from lower cost workers in the emerging economies in internationally tradable sectors, as well as migrant workers in non-tradable service sectors. This competition will also increasingly affect highly skilled professionals below the 'global star' level, who may find their ability to attract premium income levels constrained by lower cost but equally qualified graduates on the end of an internet connection in Beijing or Chennai."
What could get in the way? Hawksworth writes: ôThe main roads to avoid are a relapse into protectionism, subsidies for declining sectors (except possibly through strictly time-limited assistance to smooth the adjustment process), or attempts to pick winners through industrial policy. Instead the focus should be on boosting general education levels, facilitating retraining and business start-ups in areas adversely affected by global competition, and developing active labour market programmes based on conditional benefit regimes, childcare support and in-work tax credits. But the optimal policy response and the extent to which OECD governments should ælean against the windÆ of increased income inequality through more progressive tax regimes will be a matter for local democratic decisions reflecting local circumstances. This will involve hard choices, but national governments will still retain significant discretion to choose overall tax and spending levels.ö
Hard choices indeed.
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