Shift in the Balance of Economic Power

Global Economic Growth
Global Economic Growth

Growth Trends in the World Economy

The world economy is expected to grow at a little over 3% per annum between 2014 and 2050, which means that the global economy will nearly triple by 2050, according to a PwC report published in February 2015. The report goes onto saying that there could be a deceleration in the rate of growth after 2020. Economists are of the opinion that there would be a more sustainable long-term growth rate in most of the large economies.

Shift in Economic Power

Most leading economists and economic research organizations are in agreement regarding their prediction of a dramatic shift in the balance of economic power. The world is already witnessing a gradual shift in global economic power away from the advanced economies, and this trend is expected to continue over the next couple of decades.

The shift would be characterized by the largest emerging economies catching up and subsequently overtaking the leading advanced economies.

Global Economy: Projection of Long-term Growth

Status in 2015

According to rankings based on total GDP, measured at purchasing power parity (PPP), the world’s 10 largest economies as of October 2015 were:

  1. China
  2. United States
  3. India
  4. Japan
  5. Germany
  6. Russia
  7. Brazil
  8. Indonesia
  9. United Kingdom
  10. France

According to GDP measured at current prices, the rankings are:

  1. United States
  2. China
  3. Japan
  4. Germany
  5. United Kingdom
  6. France
  7. India
  8. Italy
  9. Brazil
  10. Canada

Source: Report published in October 2015 by the IMF (International Monetary Fund)


World GDP by Top Countries 2000
World GDP by Top Countries 2000
World GDP by Top Countries 2015
World GDP by Top Countries 2015

Growth by Industry

Apart from a shift in the balance of economic power among various countries of the world, there is expected to be a shift in the contributions made by different industries within a country. Taking the example of the US, growth in the travel and tourism industry is expected to exceed the average annual growth of the nation’s economy over the next decade.

While US GDP is forecasted to grow at a CAGR (compounded annual growth rate) of 2.3% in 2015-2025, the travel and tourism industry is projected to record a CAGR of 4.4% in real, inflation-adjusted terms. This compares with projected annual growth rates of 1.8% for retail and 2.85 for financial services, according to an article published by industry intelligence firm Skift.

US Economy: GDP Contribution by Industry - 2014

Industry
% GDP
Retail
33.3
Financial Services
21.8
Banking
8.4
Travel & Tourism
8
Automotive Manufacturing
5.8

US Industry: Growth Rate 2015 to 2025

Industry
CAGR
Travel & Tourism
4.4%
Automotive Manufacturing
4.0%
Banking
2.9%
Financial Services
2.8%
Retail
1.8%

Projections for 2016

Growth in advanced economies is projected to increase from 1.8% in 2014 to 2.4% in 2016. Growth in emerging economies is expected to increase from 4.6% in 2014 to 4.7% in 2016. Although the acceleration in growth would be lower in emerging economies, they would achieve significantly higher growth than achieved by the advanced economies.

Economic Growth Projections for 2016

Region
2013
2014
2015
2016
 
 
 
 
 
Advanced Economies
1.4
1.8
2.1
2.4
United States
2.2
2.4
2.5
3
Germany
0.2
1.6
1.6
1.7
France
0.7
0.2
1.2
1.5
Italy
-1.7
-0.4
0.7
1.2
Spain
-1.2
1.4
3.1
2.5
Japan
1.6
-0.1
0.8
1.2
United Kingdom
1.7
2.9
2.4
2.2
Canada
2
2.4
1.5
2.1
Emerging Economies
5
4.6
4.2
4.7
Russia
1.3
0.6
-3.4
0.2
China
7.7
7.4
6.8
6.3
India
6.9
7.3
7.5
7.5
Brazil
2.7
0.1
-1.5
0.7
Mexico
1.4
2.1
2.4
3
Middle East, North Africa, Afghanistan, and Pakistan
2.4
2.7
2.6
3.8
World Growth Based on Market Exchange Rates
2.5
2.7
2.6
3.2
Source: IMF, World Economic Outlook Update, July 2015

Projections till 2050

While China has already overtaken the US as the world’s largest economy in PPP terms, India is projected to overtake the US as the world’s second biggest economy by 2050. Moreover, the gap between these three largest economies (China, India and the US) and the rest of the world is expected to widen through the next few decades, according to a report published by PriceWaterhouseCoopers.

Despite this shift, the average per capita income, or GDP per capita, is expected to remain significantly higher in the advanced economies than in the emerging economies even in 2050.

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