Wednesday, March 22, 2006

Economy: 2050

“Dreaming With BRICs: The Path to 2050” was written by Goldman Sachs in 2003.

Economic Size

In less than 40 years, the BRICs’ economies together could be larger than the G6 in US dollar terms. By 2025 they could account for over half the size of the G6. Currently they are worth less than 15%.

In US dollar terms, China could overtake Germany in the next four years, Japan by 2015 and the US by 2039. India’s economy could be larger than all but the US and China in 30 years. Russia would overtake Germany, France, Italy and the UK.

Of the current G6 (US, Japan, Germany, France, Italy, UK) only the US and Japan may be among the six largest economies in US dollar terms in 2050.

Economic Growth

India has the potential to show the fastest growth over the next 30 and 50 years. Growth could be higher than 5%over the next 30 years and close to 5% as late as 2050 if development proceeds successfully.

Overall, growth for the BRICs is likely to slow significantly over this time frame. By 2050, only India on our projections would be recording growth rates significantly above 3%.

Incomes and Demographics

Despite much faster growth, individuals in the BRICs are still likely to be poorer on average than individuals in the G6 economies by 2050. Russia is the exception, essentially catching up with the poorer of the G6 in terms of income per capita by 2050. China’s per capita income could be similar to where the developed economies are now (about US$30,000 per capita). By 2030, China’s income per capita could be roughly what Korea’s is today. In the US, income per capita by 2050 could reach roughly $80,000.

Demographics play an important role in the way the world will change. Even within the BRICs, demographic impacts vary greatly. The decline inworking-age population is generally projected to take place later than in the developed economies, but will be steeper in Russia and China than India and Brazil.

Global Demand Patterns

As early as 2009, the annual increase in US dollar spending from the BRICs could be greater than that from the G6 and more than twice as much in dollar terms as it is now. By 2025 the annual increase in US dollar spending from the BRICs could be twice that of the G6, and four times higher by 2050.

Currency Movements

Rising exchange rates could contribute a significant amount to the rise in US dollar GDP in the BRICs. About 1/3 of the increase in US dollar GDP from the BRICs over the period may come from rising currencies, with the other 2/3 from faster growth.

The BRICs’ real exchange rates could appreciate by up to 300% over the next 50 years (an average of 2.5%a year). China’s currency could double in value in ten years’ time if growth continued and the exchange rate were allowed to float freely.

Source: Wilson D., Purushothaman R. (2003), “DreamingWith BRICs: The Path to 2050”, Global Economics Paper No: 99, Economic Research from the Goldman Sachs FinancialWorkbench® at https://www.gs.com

What might hinder India growth?

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