Growth slows while Asia rises

It may already be behind the world’s fastest years of economic growth – according to Goldman Sachs Research, expansion is slowing as population growth slows. But emerging markets, and particularly the powerhouses in Asia, are forecast to continue catching up with richer countries.

Goldman Sachs Research prepared its first long-term forecasts for the economies of Brazil, Russia, India and China (BRICs) almost 20 years ago and expanded these estimates to additional countries in 2011. The latest version of our economists covers 104 nations and the projections cover a horizon from now to 2075.

According to Goldman Sachs Research, global potential growth (the rate an economy can sustain without producing too much inflation) will average 2.8% per year between 2024 and 2029 and gradually decline thereafter. This compares to an average of 3.6% in the decade before the global financial crisis and 3.2% in the 10 years before the Covid pandemic (measured on a market-weighted basis). Economic expansion is slowing as world population growth has halved in the last 50 years and is now less than 1% – population growth will come to a halt by 2075, according to UN population projections. Softening productivity coupled with a slowdown in globalization is also one of the reasons why our economists expect GDP growth to slow.

“Global population control is a necessary condition for long-term environmental sustainability,” write Goldman Sachs economists Kevin Daly and Tadas Gedminas in a report. But a population that is aging and growing more slowly must contend with rising healthcare and pension costs. The number of countries facing a serious economic challenge from an aging population is likely to increase steadily over the coming decades.

READ :  Welcome to the automation economy

Emerging economies, led by the powerhouses in Asia, are growing faster than developed economies even as real (inflation-adjusted) global GDP expansion slows. Their share of the global economy will continue to grow, and their incomes are expected to slowly converge with those of richer countries. According to Goldman Sachs Research, China is expected to overtake the US as the world’s largest economy by around 2035, while India is expected to have the world’s second largest economy by 2075.

China, India and Indonesia slightly beat our economists’ 2011 forecasts, while Russia, Brazil and Latin America all underperformed by a wide margin. “We assume that the weight of global GDP will shift (even) more towards Asia in the next 30 years,” write our economists in their latest report. In 2050, the five largest economies in the world (measured in US dollars) are expected to be China, the US, India, Indonesia and Germany. Looking ahead to 2075, the prospect of rapid population growth in countries like Nigeria, Pakistan and Egypt implies that, with the right policies and institutions, these economies could become the largest in the world.

The US economy has been exceptional over the past decade. It slightly exceeded our economists’ forecasts for real GDP growth, unique among major developed economies. The dollar also appreciated strongly during this period, helping the relative value of the US economy to beat expectations. Our economists say that feat is unlikely to repeat itself, in part because the greenback has appreciated so much that it is well above its Purchasing Power Parity (PPP) fair value. In addition, they argue that “US potential growth remains significantly lower than that of major emerging markets, including China and (particularly) India.”

READ :  To compete in any economy, platforms must do better at retaining global creators

Our economists think protectionism and climate change are two of the biggest risks to their forecasts. Populist nationalists are in power in some countries and supply chain disruptions during Covid have prompted an increased focus on resilience and onshoring, according to Goldman Sachs Research. This has led to a slowdown rather than a reversal of globalization, but the risks of globalization, which has reduced income inequality between countries, are there. To continue, there needs to be a greater focus on sharing the benefits of globalization and rising incomes within each nation.

Regarding climate change, many countries have managed to decouple carbon emissions and economic growth, suggesting that this should be achievable for the global economy as a whole. But that doesn’t mean it will be easy. “Reaching sustainable growth will require economic sacrifice and a globally coordinated response, both of which will be politically difficult to achieve,” our economists wrote.

Leave a Reply

Your email address will not be published. Required fields are marked *