In the year 2050...
The UK becomes a 2nd tier economy?
The Eurozone will lag undeveloped Asia?
The USA’s not #1???
Where should we put our money then?
Ahhh, the future… If we all could predict what it would be like we’d all be raking in zillions.
Perhaps trying to keep up with Goldman, HSBC has released a report trying to do just that, but I couldn’t find it so here’s PriceWaterhouseCoopers’ instead.
Using World Bank data and adding their own short and long term estimates, PWC has released their semi-annual “THE WORLD IN 2050” report and well, there are very few surprises in it.
Not so surprising:
- Commodity prices will rise
- The UK’s and Europe ex-Russia’s economies will fall
- China will overtake the US
- Emerging Markets outgrows the G7
Surprising:
- The UK has largely ignored emerging economies as trading partners and now runs the risk of becoming 2nd tier
- India, by purchasing power parity, could overtake the US
- Australia and Argentina may be out of the G20
I’ve discussed the BRICs and the rest of the emerging nation’s ad nauseum here on WSO, and with a lot of monkeys here from the UK and Europe, I thought we’d focus on them for tonight.
Without a doubt, Europe is one of the most beautiful continents in the world*; the women, the beaches, the quaint towns and the majestic cities, there's never a lack of things to see and do in Europe.
Countries can't live on tourism alone though.
I remember Jim Rogers saying that Britain only has the City of London and the North Sea oil left to sell to the world, and that the oil is slowly going away.
Same goes for Continental Europe, aside from Germany, France, and perhaps Italy, the rest of the EU really has very little to sell to the world.
Another major factor to their declining growth rates is their decreasing population; as a whole, the EU’s population growth rate is in the red, and whether it’s their stringent immigration laws or lack of sexy time causing this is unknown to me.
Either way; an older, shrinking, not to mention demanding workforce isn't good for a continent that needs it for it's own economic growth.
Add in their socioeconomic policies and Europe (ex Monaco and Switzerland), really doesn't look like a place I'd want money to be in 40 years down the road...
What do you guys see in the future for Europe?
Will it still be a good place to put money in?
Will this hurt London as a financial center?
And for shits and gigs, what do you think WSO will be like in 2050?
Will we see Patrick on the Forbes list?
Enjoy your weekend WSO.
*obviously dependent on where you are.
Very interesting article. It's hard to imagine the U.S. not being #1, but if we don't get our shit in order, it will evidently come to that.
Actually, there might be a war or two between now and then. Something to consider. Countries don't just progress amicably without pissing off some trading partners. I predict there will be some major tensions. We are already seeing some of these tensions.
The article has too many assumptions. It doesn't include every aspect of the future development.
China, India, Brazil, Russia, and other emerging/frontier markets have tons of social, political issues.
The growth rates of these countries will slow down once their economies become more mature.
China is currently trying to slow down the economy to fight against inflation.
India depends on foreign IT companies, and a large portion of its GDP is from outsourcing. Once the wages in India increase to a certain level, the demand will go down.
There are a lot of corruption issues in BRIC countries(to be mere they exist in developed countries as well, but probably not as severe)
Military conflicts can happen in the next 40 years.
There are too many uncertain factors for people to make a decent projection for the year 2050.
^ I agree, but to add my own views: Social and political issues will definitely slow down China. While Europe is in a not necessarily good situation, being that the European Union is strong, I personally can't see a huge decline. I foresee the US as remaining on top simply because of our free capitalist systems. Perhaps relations in India will stop due to higher wages over there, or maybe even more US legislation against it.
Wait a minute...did you just say "America" and "free capitalist system" in the same sentence? For real?
Let me add that "purchasing power parity" remains one of the most flawed metrics used by social scientists today. It is one of the great farces of a global economy, and a favorite of the China and India worshippers.
Show me the actual GDP projections, even assuming a constant growth rate, then we can have a discussion.
Btw, total GDP is a useless figure. What matters in GDP per person.
It is not true entirely, China has a bigger clout in the World today even though its GDP per capita is by far lower than Norway, Luxembourg and Qatar. Do you think that Luxembourg has any say in the World right now?
Interesting report but seems to be driven primarily by the fertility rates of the various countries as a key variable of growth. For example, Britain almost displacing Germany as Europe's biggest economy because of a higher reproduction rate seems strange to me (i.e. those kids still have to get a good education and start contributing GDP).
Also, anyone who has actually been to China would likely agree that the enterpreneurial culture over there is unbelievable. You get the feeling of the Wild West in terms of openness to business dealings and making money. I would very much tend to disagree that the U.S. still has a "free capitalist system". That notion is simply incorrect given the amount of regulation, taxation, protectionism, etc. China is quickly catching up and improving its political and regulatory system and unless you have some major political disturbances (e.g. maybe due to the worsening environmental situation, growing energy demands, water shortages, etc.), China's economy should be relatively free to grow fairly quickly.
Think GS's Growth Environment Score tries to estimate this ability to build a strong economy using various factors including (i) human capital (e.g. education system, life expectancy), (ii) technology, (iii) political conditions (e.g. rule of law, privatisation, trade liberalisation, labour rigidity), (iv) macroeconomic conditions (e.g. investment rates), and (v) macroeconomic stability (e.g. inflation, gov't deficit). The rankings below show that China/India still have ways to go to catch up to European/US standards but the US does not have the best environment for business either. Singapore: 8.9 (#1) Norway: 8.2 (#2) Hong Kong: 8.2 (#3) Euro Area: 7.3 (#22) US: 6.9 (#33) China: 5.4 (#84) India: 4.0 (#138)
Also, I don't agree that total GDP is a useless figure, it still measures the economic strength of a country as a whole. GDP per capita is obviously also important as a measure of quality of life but has to be seen relative to cost of living, which is what PPP-adjusted metrics try to achieve (although not perfect). Making $50k per capita cannot be compared when living in London/NY vs. Mumbai.
It's too hard to predict the future, but US is always a safe bet. Or better, diverse your investment.
Come on, nobody can forecast out 50 years accurately and a 10 year old can take trends and extrapolate out a 1000 years if they wanted to. We all might even be dead in 50 years!
Agree with nonpog. Having said that, I will forecast out 40 years anyway.
First off, I don't buy the whole China story. The Chinese GDP growth rates are unsustainable because they rely on inefficient energy policy, foreign technology, and government support.
The Chinese currently use capital controls to control inflows of foreign capital into their country. As a result, the currency is weaker than it should be, and they are able to better compete against other nations in global manufacturing (ugh I hate to make this argument because I sound like Chuck Schumer). Despite being similar in size to the Japanese in terms of GDP, the Chinese use 5 times as much energy. Most of it is coal. Right now, the Chinese only import about 12% of their energy. However, they will need to increase this in the future to keep up with their growth. Increasing energy obtained abroad will force the Chinese to lower capital controls, in affect appreciating their currency, and lowering their ability to compete. Currently, the Chinese economy would be larger if they sold all their coal on the world market for some other country to use in their manufacturing processes. Thus, rising coal prices worldwide will force the currency to rise in value, thus undermining the entire Chinese manufacturing system (and also helping the US with its trade deficits, in turn helpings its budget deficit!).
Furthermore, the Chinese have basically taken a free ride on the US' back when it comes to technological innovation. The US still leads the world in R&D spending. The Chinese, when forming JV's with American Companies (basically the only way to break into China), include clauses which state that these companies must provide the JV with technology. As a result, analysts predict that Chinese companies will use this technology and one day compete against their JV partners, both at home and potentially abroad. Of course, American companies see this coming, and will eventually stop providing free technological innovation to the Chinese. Lets see how they compete then.
As for your comments on Europe, they are true regarding demographics. However, declining populations are not that bad. This is a trend seen across the entire developed world (US would have a declining population as well if not for immigration). According to Solow growth model, the only economic growth in these countries should come from technological innovation. The point is, economic growth is not the end-all-be-all of existence. If the country has reliable infrastructure, and a well-distributed population (in terms of age), then that economy is likely to succeed and its citizens are likely to be happy, regardless of whether they are putting up 1% or 5% growth. Sure, investors might not be happy, but the whole point of investing is to send capital to places which need it to grow.
Of course, all of these are static assumptions in a dynamic environment. We cannot predict wars, natural disasters, famine, new trends, etc. As a result, economic models and predictions are for the most part useless, although it is fun to speculate. Its very likely that the countries and companies that are giants today might become less internet as the information age continues. In the future, it is likely that you will no longer need to be a part of a company. For example, if I were to start a business, I can purchase materials online, hire freelance workers online (from anywhere in the global), contract with someone online to assemble my product online, and sell to customers worldwide, and assemble this all in a coffee shop anywhere in the world. Similarly, elance workers can work on a multitude of projects, anywhere in the world, and compete on a global labor market. They can also use places like WSO for information (I predict in 2050, WSO will more likely be a place where independent investment bankers come to learn how to set up a freelance investment banking business, instead of coming on to learn how to 'break in'. Why 'break in' when you can set up your own shop?). All of this globalization and online collaboration will likely break down the barriers we are familiar with today, and make measures like GDP impossible to measure or completely irrelevant.
Investment banking is a business where quality is much more important than quantity and efficiency. Billion dollar companies are more than willing to shell out a few million extra dollars to make sure there are no mistakes in the merger, acquisition, or IPO process. I see very few changes going on in that industry over the next 40 years and it will always be full of ivy leaguers, not because they are the most efficient at doing the job, but because they have Harvard on their resumes.
As far as China and India passing the US economy in the next 40 years, I refuse to release an estimate because right now there are way too many undecided factors. We all know they will be be tremendous growth stories, but they have many hurdles to conquer if they wish to surpass the United States. Such as:
1) The availability of clean water. 2) Feeding a growing population. 3) One of the most valuable assets to both their economies is the availability of cheap labor. What happens to growth when wages increase to a more reasonable level? 4) China is one of the most industrial based economies in the world. In the year 2050, if we do not figure out a solution to the world's growing demand for energy we will see sky high oil, coal, and natural gas prices. If this happens China's industrial based economy will suffer from higher input prices, and higher costs sending their products overseas. The United States has largely made the transition to an intellectual based economy, and that will be a continuing process over the next 40 years. An intellectual based economy will see profit margins and growth squeezed a lot less by higher commodity prices than an intellectual based economy.
The United States can also do a number of things to spur growth that we do not choose to do for political and ethical reasons. I will not discuss these options right now, because it would take hours of my time and listing all these unethical options would probably result in monkey shit being thrown at me. However, if the United States does become desperate enough, I would not put it past the US government to exploit some of these opportunities.
Though I'm all for India being one of the world's leading economies, there are tonnes of challenges to overcome before we reach such a stage. Corruption in politics and the bureaucracy is one of the main challenges facing India. Also we need to ramp up investments in infrastructure and education by a factor of 10. We also have a long list of neighbouring countries who don't like us.
Only thing I'm sure of is that by 2050 ill be either retired or dead (maybe both?)
Bit more on the HSBC report here by Hamish Mcrae:
http://www.independent.co.uk/news/business/comment/hamish-mcrae/hamish-…
His opinion articles are generally worth a read
In Soviet Russia predictions come to you, engage you in interesting conversation, and then leave you with a cute post-it note, in color, saying how to make a ze money.
Sooner or later, China will overtake US as the biggest economy in the world. Been the globe's top economy for 18 of the past 20 centuries, this is merely considered as a return to the status quo for us Chinese.
The only problem is when will this actually happen.
http://www.foreignpolicy.com/articles/2010/01/04/123000000000000
[quote=Sartre]Sooner or later, China will overtake US as the biggest economy in the world. Been the globe's top economy for 18 of the past 20 centuries, this is merely considered as a return to the status quo for us Chinese.
The only problem is when will this actually happen.
http://www.foreignpolicy.com/articles/2010/01/04/123000000000000[/quote]
I know they use all kinds of metrics to try and shove this idea down your throat that China and India were a juggernaut in previous centuries (the same territories that were overrun in about five minutes by western militaries), despite the fact that something like that is unmeasurable for that era and that China has been technologically and politically behind the west for a large majority of those 18 centuries. Not to mention that the quality of life in Asia was far lower than that in the west.
This Chinaphilia that the media has really is so annoying.
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