This content is from: Innovation

Whither Europe, Cometh India

By mid-century, the U.S. will probably still be the largest economy in the world, but it will have company. According to a new report from PricewaterhouseCoopers, China will be nipping at the U.S.’s heels in 2050, and, measured in terms of purchasing power parity, may even exceed America’s gross domestic product, with India not far behind.

By mid-century, the U.S. will probably still be the largest economy in the world, but it will have company.

According to a new report from PricewaterhouseCoopers, China will be nipping at the U.S.’s heels in 2050, and, measured in terms of purchasing power parity, may even exceed America’s gross domestic product, with India not far behind.

The white paper, “The World in 2050,” tries to project the growth – and decline – of the 17 largest economies in the world, which can be roughly divided into the G7-plus (the U.S., Japan, Germany, U.K., France, Italy and Canada, plus Spain, Australia and South Korea), and what the report’s author, John Hawksworth, calls the E7 emerging market economies (China, India, Brazil, Russia, Indonesia, Mexico and Turkey). And it finds – surprise, surprise – that 44 years from now, the E7 will be bigger than the G7-plus, probably between 25% and 75% larger, where today its total GDP is 20% of that of the G7-plus.

“Despite the inevitable uncertainties when looking this far ahead,” Hawksworth, head of macroeconomics at Pwc, says, “the overwhelming likelihood is that there will be a significant shift in world GDP shares from the G7 to the E7 by the middle of the century.”

The big winner, according to PwC, will be India, which, in purchasing power parity terms, may equal the U.S. by 2050. It is currently less than one-third the size of U.S. GDP by PPP. The report credits India’s better growth rate relative to fellow E7ers China and Russia can be attributed to the latters’ expected decline in working-age population. India and its four other E7 brethren boast relatively young workforces. Those five countries could see their GDPs grow from today’s 2% to 6% of the U.S. to 10% to 20%.

The big losers, in a sense, will be the western European powers and (relatively) Russia, the latter facing much slower growth than its fellow E7 countries. While the U.S. is likely to continue to reign as the largest economy in the world in spite of losing ground, its NATO allies will just be, well, losing ground, both to the U.S. and the E7. Japan, the report says, will be on a level with Brazil and Indonesia, while the big guns of Western Europe – Germany, Britain and France – are projected to have GDPs smaller than Mexico (!), about the same size as Russia. Italy, meanwhile, will have to content itself with being a Turkish-size economy.

Disaster? Not according to PwC, which calls the scenario a “win-win.” That counterintuitive little nugget is reached by concluding explosive growth in the E7 will create big opportunities for G7-plus companies in emerging economies, as well as for their consumers, whose incomes will rise and who will have access to cheaper imported goods. “Trade between the E7 and the G7 should therefore be seen as a mutually beneficial process, not a zero-sum competitive game,” the report argues.

But even this win-win situation has its losers. G7 mass manufacturers – high- and low-tech – will decline relative to their E7 competitors. And in financial services, the G7 will increasingly face competition from China and India, especially.

Maybe Wall Street shouldn’t feel so comfortable, after all.

Related Content