New 'World in 2050' report: Low growth the new norm for Australia

7 February

The global economy will grow at an average rate of around 2.6% and the long-term global economic power shift away from the established advanced economies is set to continue as emerging market countries continue to boost their share of world GDP.

These are two of the key findings from the latest PwC ‘World in 2050’ report which presents projections of potential GDP growth up to 2050 for 32 of the largest economies in the world.

The report projects that the world economy could double in size by 2042, growing at an annual average real rate of around 2.6% between 2016 and 2050. This growth will be driven largely by emerging market and developing countries, with the E7 economies of Brazil, China, India, Indonesia, Mexico, Russia and Turkey growing at an annual average rate of around 3.5% over the next 34 years, compared to only around 1.6% for the advanced G7 nations of Canada, France, Germany, Italy, Japan, the UK and the US.

By 2050 the Chinese economy will be 30% larger than the next largest economy, India (measured at PPP - see note 1). India will also overtake the US to become the second largest economy and Indonesia will move up to the world’s seventh largest economy.

PwC Australia Chief Economist Jeremy Thorpe said there are important considerations for Australia as we see global economic power shift further towards Asia and away from Europe and the US, and that low growth will become the new norm for our economy.

“Globally we will continue to see the shift in economic power away from established advanced economies towards emerging economies in Asia. The E7 could comprise almost 50% of world GDP by 2050, while the G7’s share declines to only just over 20%.”

“By 2030 the nine largest Asian economies will comprise more than 50% of the GDP of the largest 32 countries,” Mr Thorpe said.

“Emerging countries will create many opportunities for businesses as these countries progress into new industries, engage more with world markets and their populations get wealthier.

“The key opportunity for Australia is to leverage our proximity to Asia. We need to lift our eyes beyond China to also focus on the the fast growing emerging economies such as India, Indonesia, the Philippines, Vietnam and Thailand, and we should be thinking about how we will best capitalise on the increased demand for goods and services right across our region. That’s where the bulk of economic growth will be in the next thirty years.”

Commenting on the forecast for Australia Mr Thorpe said: “Australia’s forecast average annual growth rate of 2.3% is lower than our historic average performance. We may need to accept that low growth is the new norm for Australia.

“However, lower growth puts pressure on our standard of living. To address this, and be globally competitive, Australia must remain an attractive place to do business, have a tax system that isn’t out of step with the rest of the world, and prioritise more focused investment to lift our education and skills performances.

“To succeed, Australia needs to focus on engaging effectively with the emerging Asian economies,” Mr Thorpe concluded.

Key PwC ‘World in 2050’ Findings

Latest PwC report projects that for GDP measured at purchasing power parities (PPPs):

  • World economy could double in size by 2042
  • China has already overtaken the US to be largest economy based on GDP in PPP terms, and could be the largest valued at market exchange rates before 2030
  • India could overtake the US by 2050 to go into 2nd place and Indonesia could move into 4th place by 2050, overtaking advanced economies like Japan and Germany
  • By 2050, six of the seven largest economies in the world could be emerging markets
  • Vietnam could be the world’s fastest growing large economy over the period to 2050, rising to 20th in the global GDP rankings by that date
  • The EU27’s share of world GDP could fall to below 10% by 2050
  • UK could grow faster than the EU27 average in the long run if it can remain open to trade, investment and talented people after Brexit
  • Turkey could overtake Italy by 2030 if it can overcome current political instability and make progress on economic reforms
  • Nigeria has potential to rise up the global GDP rankings, but only if it can diversify its economy and improve governance standards and infrastructure
  • Colombia and Poland have potential to be the fastest growing large economies in their respective regions – Latin America and the EU.

Notes:

  1. PPPs vs MERs: there is no single correct way to measure the relative size of economies at different stages of development. Depending on the purpose of the exercise, GDP at either market exchange rates (MERs) or purchasing power parity rates (PPPs) may be the most appropriate measure. In general, GDP at PPPs is a better indicator of average living standards or volumes of outputs or inputs because this corrects for relative price differences, while GDP at MERs is a better measure of the relative total size of markets for businesses at a given point in time. However, historical evidence shows that MERs will generally, in the long run, tend to move up towards PPPs for emerging economies as their average income levels gradually narrow the gap with the current advanced economies. An econometric equation within the PwC long-term growth model that reflects this historical relationship forms the basis for the projections of GDP at MERs in the report. This also makes the common simplifying assumption that PPP exchange rates remain constant in real terms over time. Projections of MERs are subject to particularly high margins of uncertainty, however, which is why both the report and this media release focus primarily on projections of GDP at PPPs. But Appendix B in the full report also shows projections for GDP at MERs to 2050 for the 32 economies in the study. 
  2. A copy of the full report The long view: how will the global economic order change by 2050? will be published on 7th February 2017 at http://www.pwc.com/world2050
  3. This report is part of PwC’s wider research programme on the megatrends shaping global economic and business development. More details can be found here: http://www.pwc.co.uk/issues/megatrends/index.jhtml 
  4. More details on business strategies for emerging markets can be found in reports by the PwC Growth Markets Centre, which are available from: http://www.pwc.com/gx/en/growth-markets-centre/index.jhtml

 

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