Long-term macroeconomic forecasts
Key trends to 2050
A special report from The Economist Intelligence Unit
www.eiu.com
Long-term macroeconomic forecasts
Key trends to 2050
Contents
Overview2
Top ten economies in 2050 at market exchange rates
3
The rise of Asia continues
4
Global dominance of the top three economies
5
A new era of global demographic decline
6
Population growth will still benefit a few
7
For most, population as a source of growth will need to be replaced
9
Collectively rich, individually not so rich
11
Long-term methodology
12
© The Economist Intelligence Unit Limited 2015
1
Long-term macroeconomic forecasts
Key trends to 2050
Overview
W
ith many companies making strategic business decisions over long time frames, the long-term
projections of The Economist Intelligence Unit (EIU) provide information to facilitate such
decisions. Long-term forecasts and scenarios are also key to understanding some of the big economic
issues that will shape global business in the coming decades. The EIU has an established methodology
for producing long-term economic forecasts for 82 economies. We have recently completed an
extension of our forecast horizon to 2050, and below we consider some of the key trends that are
highlighted by these extended forecasts.
2
© The Economist Intelligence Unit Limited 2015
Long-term macroeconomic forecasts
Key trends to 2050
Top ten economies in 2050 at market
exchange rates
Nominal GDP
(US$ bn)
2014
US [1]
2050
17,419
China [2]
10,335
Japan [3]
4,606
Germany [4]
3,865
China [1]
105,916
70,913
US [2]
India [3]
Indonesia [4]
63,842
15,432
UK [5]
2,951
Japan [5]
11,367
France [6]
2,835
Germany [6]
11,334
Brazil [7] 2,346
Brazil [7]
Italy [8] 2,149
Mexico [8]
9,826
India [9] 2,055
UK [9]
9,812
Russia [10] 1,861
France [10]
9,671
10,334
Economy moves up rankings
Economy moves down rankings
Economy remains at rankings
Source: The Economist Intelligence Unit.
C
hina is expected to overtake the United States in 2026 in nominal GDP in US dollar terms and
maintain its position as the largest economy to 2050. India is expected to move up the rankings
to third place, with real growth averaging close to 5% up to 2050. Indonesia and Mexico are expected
to leap into the top ten world economies from 16th and 15th place in 2014 to fourth and ninth place
respectively by 2050. We do not expect the representation of Western economies within the top-ten
listing to become insignificant. The United States, Germany, the United Kingdom and France will all
move down the rankings, but only Italy will lose its place within the top ten.
© The Economist Intelligence Unit Limited 2015
3
Long-term macroeconomic forecasts
Key trends to 2050
The rise of Asia continues
Regional share of global GDP
(%)
Asia-Pacific
Americas
Europe
100
Middle East & Africa
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
1981-90
1991-2000
2001-10
2011-18
2019-30
2031-40
2041-50
Source: The Economist Intelligence Unit.
T
he rise of Asia is not a new phenomenon; the rise of Japan and South Korea has been witnessed
over the second half of the 20th century. The start of the new millennium saw another boom, with
many Asian economies recording high growth rates that took their share of global GDP from 26% to
32% between 2000 and 2014. Our extended long-term forecasts suggest that Asia’s rise will continue
up to 2050—not quite at the same pace, but by 2050 it will account for 53% of global GDP.
4
© The Economist Intelligence Unit Limited 2015
Long-term macroeconomic forecasts
Key trends to 2050
Global dominance of the top three economies
Nominal GDP, 2050
(US$ trn)
120
120
100
100
105.92
80
80
70.91
60
60
63.84
52.67
40
40
20
20
0
0
China
US
India
Next 5 economies
Source: The Economist Intelligence Unit.
B
y 2030 the top three economies of the world will be the US, China and India. Such will be the
growth of the two latter countries, in particular, that by 2050 they will each be richer than the next
five (Indonesia, Germany, Japan, Brazil, and the UK) put together. This will represent a scale of wealth
relative to the rest of the top ten that is unique in recorded history.
Given China’s and India’s economic might, they will take on a much bigger role in addressing global
issues such as climate change, international security and global economic governance. In the medium
term, this will require the world’s existing powers—notably the US—to let India, and especially China,
play a greater role on the world stage and adapt international institutions to allow them to exert
greater influence.
© The Economist Intelligence Unit Limited 2015
5
Long-term macroeconomic forecasts
Key trends to 2050
A new era of global demographic decline
Real GDP
(% change - CAGR)
4.5
Middle East & Africa
Asia-Pacific
Americas
Europe
World
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
2011-19
2020-30
2031-40
2041-50
Source: The Economist Intelligence Unit.
G
lobal growth to 2050 is not expected to decline dramatically from its average historical levels.
However, regional growth rates are expected to begin to decline across every region after 2030.
Average growth in global population
(%)
2.0
Population
Working-age population
2.0
1.8
1.8
1.6
1.6
1.4
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
0.0
1991-2000
2001-10
2011-18
2019-30
2031-40
2041-50
Source: The Economist Intelligence Unit.
Much of the global growth in recent decades has been driven by population growth. Long-term
population estimates, however, reveal that growth in the global population is expected to see a
dramatic decline from an average of 1.3% in the 1980-2014 period to 0.5% across the 2015-50 period.
The slowdown in the growth rate of the global working-age population will be even starker, with a
drop to 0.3% in the 2015-50 period, compared with an average growth rate of 1.7% in the 1980-2014
period.
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© The Economist Intelligence Unit Limited 2015
Long-term macroeconomic forecasts
Key trends to 2050
Population growth will still benefit a few
T
he majority of countries in Africa and the Middle Eastern region will benefit from an increase in
their working populations, which will be an advantage in sustaining higher growth rates in the
forecast period. The potential labour forces of Angola, Nigeria and Kenya are expected to almost triple
between 2014 and 2050, rising respectively from 9m to 28m, 56m to 161m and 18m to 48m. The labour
forces of Algeria, Egypt and Iran are expected to increase considerably too, doubling in size by 2050.
Largest increase in labour force
(m)
2050
2014
180
180
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
Nigeria
Pakistan
Philippines
Kenya
Egypt
Iran
Angola
Algeria
Kuwait
Libya
Source: The Economist Intelligence Unit.
Contribution to real GDP growth, 2019-50
(% CAGR)
of which Labour
of which Capital and TFP
Real GDP (% change)
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
Angola
Kenya
Nigeria
Pakistan
Philippines
Venezuela
Algeria
Egypt
Iran
South Africa
Source: The Economist Intelligence Unit.
© The Economist Intelligence Unit Limited 2015
7
Long-term macroeconomic forecasts
Key trends to 2050
These economies will primarily benefit from favourable demographics in the forecast period, with
higher birth rates supporting a healthy supply of workers. To a lesser extent, some of these economies
will also be able to benefit from increased participation rates, as growing numbers of women enter the
labour force in some economies and retirement ages are raised in others to increase the labour supply
and support growth. Policies pursued to increase participation rates, however, will not be able to
boost growth significantly. Countries with favourable demographics will therefore have an advantage
in terms of sustaining higher levels of growth. The contribution to growth from changes to the labour
force for these economies will be positive and represent a larger driver of growth than capital and total
factor productivity.
For countries with favourable demographics, our forecasts assume that growth-friendly policies are
pursued and are successful in providing jobs for a growing workforce and ensuring longer-term growth.
Failure to achieve this will lead to a growing number of potential workers unable to find employment,
resulting in a source of significant political instability and a missed opportunity in terms of seizing an
advantage offered by favourable demographics.
8
© The Economist Intelligence Unit Limited 2015
Long-term macroeconomic forecasts
Key trends to 2050
For most, population as a source of growth
will need to be replaced
M
ost of Europe and East Asia, by contrast, is expected to see labour-force declines, representing a
severe drag on growth. Japan will see the greatest decline of over one-quarter, from 66m to 47m;
China and South Korea are also expected to experience a 17-18% contraction in their labour forces.
Within Europe, Greece, Portugal and Germany will see their available labour forces decline by over onefifth, falling between 2014 and 2050 from 4.8m to 3.8m, 5.2m to 4.2m and 45m to 35m respectively. As
a group, emerging European economies (with a few exceptions, including Kazakhstan and Turkey) will
experience persistent declines in their available labour forces, ranging between 20% and 30%. These
economies will see the drop in their labour forces act as a drag on growth.
Largest decrease in labour force
(m)
2050
2014
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
Japan
Germany
Thailand
South Korea
Ukraine
Taiwan
Romania
Portugal
Greece
Lithuania
Source: The Economist Intelligence Unit.
Contribution to real GDP growth, 2019-50
(% CAGR)
of which Labour
of which Capital and TFP
Real GDP (% change)
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
-1.0
-1.0
Japan
Thailand
Romania
Germany
Ukraine
Taiwan
Russia
Greece
Portugal
South Korea
Source: The Economist Intelligence Unit.
© The Economist Intelligence Unit Limited 2015
9
Long-term macroeconomic forecasts
Key trends to 2050
Policies to boost participation rates will be pursued to soften the negative effects of unfavourable
demographics, but these will not be sufficient. Immigration policies will move up high on government
agendas as economies will be required to compete to attract a limited global pool of labour.
A country’s ability to switch to different sources of growth will be crucial. For some countries which
are starting from a low capital base, there will be the potential for investment to support growth. These
countries will still be able to make gains by moving from less technologically intensive production
to capital-intensive manufacturing production. For more advanced economies, however, it will be
gains from the more efficient usage of capital through increased technological progress as a result
of investment in research and development (R&D) that will boost growth. A low level of investment
following the financial crises in many economies suggests that the outlook for such gains will be
unspectacular.
10
© The Economist Intelligence Unit Limited 2015
Long-term macroeconomic forecasts
Key trends to 2050
Collectively rich, individually not so rich
E
merging markets are expected to grow faster than developed economies, and as a result developing
countries such as China and India are likely to overtake current global leaders such as the US, Japan
and Western Europe, while other emerging markets, such as Indonesia and Mexico, will rank among the
top ten economies at market exchanges rates by 2050, overtaking economies such as Italy and Russia.
By contrast, in terms of income per capita, a measure of individual spending power, today’s
advanced economies are likely to continue to dominate. Emerging economies such as China, India
and Indonesia are projected to grow significantly in terms of per-capita income. China is expected to
almost catch up with Japan by 2050, and India will see its spending power rise from representing 3%
of the spending power of a US consumer to 24% by 2050. The comparable spending power of a Chinese
consumer compared with that of a US consumer will increase from 14% in 2014 to just under 50% - a
significant catch-up.
The rise of emerging economies will continue to provide new customers and opportunities to
scale up. However, despite their low growth outlook advanced economies cannot be ignored, as the
spending power of consumers in these regions will remain significantly higher.
Nominal GDP per capita
(US$)
2000
2014
Japan
37,639
US
US
36,449
Germany
23,744
Germany
Mexico
Brazil
6,580
3,788
47,688
Italy
Brazil
11,570
Spain
Mexico
10,426
Sri Lanka
Indonesia 840
Indonesia
7,623
3,508
India 1,637
156,940
Germany
36,266
China
174,995
Sweden
Japan
China 943
India 482
54,634
2050
Hungary
Russia
South Africa
102,323
82,547
65,910
47,337
42,682
40,974
Source: The Economist Intelligence Unit.
© The Economist Intelligence Unit Limited 2015
11
Long-term macroeconomic forecasts
Key trends to 2050
Long-term methodology
T
he methodology used to derive our long term-forecasts is distinct from that used to generate
our five-year (medium-term) forecasts. Medium-term forecasts are based on a “demand-side”
forecasting framework, which assumes that supply adjusts to meet demand either directly through
changes in output or through the drawing-down (or building-up) of inventories. Such a framework
is appropriate for constructing short- and medium-term projections, where output can deviate
substantially (but temporarily) from its long-run sustainable level. But a demand-side framework
is not appropriate for forecasting over the long term. Instead, we utilise a supply-side framework,
in which output is determined by the availability of labour and capital equipment and the growth in
productivity.
The Economist Intelligence Unit is well placed to produce long-term projections and scenarios.
We have considerable experience in tracking and forecasting a variety of economic and institutional
factors, which our analysis suggests are closely related to long-term growth prospects. These factors
include the availability of an educated workforce, the openness of the economy to trade, the quality
of institutions (including the legal framework and the quality of the bureaucracy), fiscal policy, the
degree of government regulation and movements in the population of working age relative to the
overall population. In addition, the income gap between each country and the global technological
leader (the US) is important, as this illustrates the potential for economic catch-up by importing ideas
and techniques. Forecasts of GDP growth per capita based on these factors can then be combined with
demographic projections (taken primarily from UN population projections) to give forecasts for overall
GDP growth.
12
© The Economist Intelligence Unit Limited 2015
While every effort has been taken to verify the
accuracy of this information, The Economist
Intelligence Unit Ltd. cannot accept any
responsibility or liability for reliance by any person
on this report or any of the information, opinions
or conclusions set out in this report.
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