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December 2, 2022

Global financial crisis accelerates shift in economic power to emerging economies

The global financial crisis has accelerated the shift in economic power to emerging economies, says a Price Waterhouse Coopers (Pwc) report. This is one of the conclusions from the latest in the series of PwC’s “The World in 2050” reports. Measuring Gross Domestic Product (GDP) at purchasing power parities (PPPs) – which corrects for the fact that price levels tend to be lower in emerging economies – the analysis shows that the E7 emerging economies (China, India, Brazil, Russia, Mexico, Indonesia and Turkey) are likely to overtake the G7 economies (US, Japan, Germany, UK, France, Italy and Canada) before 2020.

If instead GDP is used at market exchange rates (MERs), then the shift in the economic world order is slower but equally inexorable, with the E7 projected to overtake the G7 around 2032. China would also overtake the US in that same year to become the biggest economy in the world based on GDP at market exchange rates, although on a PPP basis this would be likely to occur before 2020. This is even allowing for some slowing of China’s growth rate over time due to its one child policy and the fact that, as it catches up with the US, it must rely more on innovation than imitation to sustain further growth.
In 2009 India’s share of world GDP measured at MERs was just 2%. By 2050 this share could grow to around 13%. India could overtake Japan as early as 2011 based on GDP at PPPs and could even overtake the US by 2050 on this basis. India’s progress up the GDP league table will be much slower using market exchange rates because its domestic price levels are still far below G7 levels at present, but even based on GDP at MERs it should have overtaken Japan by 2030 and be close to catching up with the US by 2050. The analysis finds that Australia and Argentina may be relegated from the ranks of the largest G20 economies by 2050, while Vietnam and Nigeria have the potential to join this list. Indonesia could rise from the sixteenth biggest economy in PPP terms in 2009 to the eighth biggest by 2050, overtaking not just Italy (as shown in the table above) but also France, the UK and Germany over the next 40 years. Depending on the measure used, the UK would only narrowly remain in the top ten in 2050 with a ranking of 9th place based on GDP at market exchange rates, or 10th based on GDP at PPPs.

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