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DreamingWithBRICs:ThePathto2050
DominicWilsonRoopaPurushothaman1stOctober2003
GlobalEconomicsPaperNo:99
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Over the next 50 years, Brazil, Russia, India and China—the BRICseconomies—could become a much larger force in the world economy. Wemap out GDP growth, income per capita and currency movements in theBRICs economies until 2050.
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The results are startling. If things go right, in less than 40 years, the BRICseconomies together could be larger than the G6 in US dollar terms. By 2025theycouldaccountforoverhalfthesizeoftheG6.OfthecurrentG6,onlytheUS and Japan may be among the six largest economies in US dollar terms in2050.
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Thelistoftheworld’stenlargesteconomiesmaylookquitedifferentin2050.Thelargesteconomiesintheworld(byGDP)maynolongerbetherichest(byincome per capita), making strategic choices for firms more complex.
EconomicResearch from theGS FinancialWorkbench
®
at https://www.gs.com
Many thanks to Jim O’Neill, Paulo Leme, SandraLawson, Warren Pearson and our regionaleconomistsfortheircontributionstothispaper.
Global Paper No 99
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1st October 2003
SUMMARY
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Over the next 50 years, Brazil, Russia, India and China—the BRICs economies—could become a muchlarger force in the world economy. Using the latest demographic projections and a model of capitalaccumulation and productivity growth, we map out GDP growth, income per capita and currencymovementsintheBRICseconomiesuntil2050.
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The results are startling. If things go right, in less than 40 years, the BRICs economies together could belargerthantheG6inUSdollarterms.By2025theycouldaccountforoverhalfthesizeoftheG6.Currentlythey are worth less than 15%. Of the current G6, only the US and Japan may be among the six largesteconomiesinUSdollartermsin2050.
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Abouttwo-thirdsoftheincreaseinUSdollarGDPfromtheBRICsshouldcomefromhigherrealgrowth,withthebalancethroughcurrencyappreciation.TheBRICs’realexchangeratescouldappreciatebyupto300%overthenext50years(anaverageof2.5%ayear).
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TheshiftinGDPrelativetotheG6takesplacesteadilyovertheperiod,butismostdramaticinthefirst30years. Growth for the BRICs is likely to slow significantly toward the end of the period, with only Indiaseeing growth rates significantly above 3% by 2050. And individuals in the BRICs are still likely to bepooreronaveragethanindividualsintheG6economies,withtheexceptionofRussia.China’spercapitaincomecouldberoughlywhatthedevelopedeconomiesarenow(aboutUS$30,000percapita).
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Asearlyas2009,theannualincreaseinUSdollarspendingfromtheBRICscouldbegreaterthanthatfromtheG6andmorethantwiceasmuchindollartermsasitisnow.By2025theannualincreaseinUSdollarspendingfromtheBRICscouldbetwicethatoftheG6,andfourtimeshigherby2050.
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The key assumption underlying our projections is that the BRICs maintain policies and developinstitutions that are supportive of growth. Each of the BRICs faces significant challenges in keepingdevelopment on track. This means that there is a good chance that our projections are not met, eitherthroughbadpolicyorbadluck.ButiftheBRICscomeanywhereclosetomeetingtheprojectionssetouthere,theimplicationsforthepatternofgrowthandeconomicactivitycouldbelarge.
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TherelativeimportanceoftheBRICsasanengineofnewdemandgrowthandspendingpowermayshiftmoredramaticallyandquicklythanexpected.Highergrowthintheseeconomiescouldoffsettheimpactof greyingpopulationsandslowergrowthintheadvancedeconomies.
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Higher growth may lead to higher returns and increased demand for capital. The weight of the BRICs ininvestment portfolios could rise sharply. Capital flows might move further in their favour, promptingmajorcurrencyrealignments.
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Risingincomesmayalsoseetheseeconomiesmovethroughthe‘sweetspot’ofgrowthfordifferentkindsof products, as local spending patterns change. This could be an important determinant of demand andpricingpatternsforarangeofcommodities.
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Astoday’sadvancedeconomiesbecomeashrinkingpartoftheworldeconomy,theaccompanyingshiftsinspendingcouldprovidesignificantopportunitiesforglobalcompanies.Beinginvestedinandinvolvedin the right markets—particularly the right emerging markets—may become an increasingly importantstrategicchoice.
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Thelistoftheworld’stenlargesteconomiesmaylookquitedifferentin2050.Thelargesteconomiesintheworld (by GDP) may no longer be the richest (by income per capita), making strategic choices for firmsmorecomplex.
T
heworldeconomyhaschangedalotoverthepast50years.Overthenext50,thechangescouldbeatleastasdramatic.We have highlighted the importance of thinkingabout the developing world in our recent globalresearch, focusing on key features of developmentand globalisation that we think are important toinvestors with a long-term perspective. A majortheme of this work has been that, over the next fewdecades, the growth generated by the largedevelopingcountries,particularlytheBRICs(Brazil,Russia,IndiaandChina)couldbecomeamuchlargerforceintheworldeconomythanitisnow—andmuchlargerthanmanyinvestorscurrentlyexpect.In this piece, we gauge just how large a force theBRICs could become over the next 50 years. We dothisnotsimplybyextrapolatingfromcurrentgrowthrates,butbysettingoutclearassumptionsabouthowthe process of growth and development works andapplying a formal framework to generate long-termforecasts. We look at our BRICs projections relativeto long-term projections for the G6 (US, Japan, UK,Germany,FranceandItaly)
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.Using the latest demographic projections and amodel of capital accumulation and productivitygrowth, we map out GDP growth, income per capitaand currency movements in the BRICs economiesuntil2050.Thisallowsustopaintapictureofhowtheworld economy might change over the decadesahead.Theresultsoftheexercisearestartling.Theysuggestthatifthingsgoright,theBRICscouldbecomeaveryimportant source of new global spending in the nottoodistantfuture.ThechartbelowshowsthatIndia’seconomy, for instance, could be larger than Japan’sby2032,andChina’slargerthantheUSby2041(andlarger than everyone else as early as 2016). TheBRICseconomiestakentogethercouldbelargerthantheG6by2039.Our projections are optimistic, in the sense that theyassumereasonablysuccessfuldevelopment.Buttheyare economically sensible, internally consistent andprovide a clear benchmark against which investorscansettheirexpectations.Thereisagoodchancethatthe right conditions in one or another economy willnot fall into place and the projections will not be
Global Paper No 99
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1st October 2003
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
UK USFrance Germany JapanG6ItalyFranceGermanyItalyGermany Japan
Russia
BrazilIndiaChina
BRICs
Overtaking the G6: When BRICs' US$GDP Would Exceed G6
ItalyFrance
*cars indicate when BRICs US$GDP exceeds US$GDP in the G6
GS BRICs Model Projections. See text for details and assumptions.
Germany
1 Anydecisiontolimitthesampleofcountriesistosomeextentarbitrary.InfocusingontheG6(ratherthantheG7orabroadergrouping),wedecidedtolimitourfocustothosedevelopedeconomieswithGDPcurrentlyoverUS$1trillion.ThismeansthatCanadaandandsomeoftheotherlargerdevelopedeconomiesarenotincluded.Addingtheseeconomiestotheanalysiswouldnotmateriallychangetheconclusions.
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