The BRICs’ Path to 2050: A

Dramatically Different Global Economy

Roopa Purushothaman
Goldman Sachs
 Dreaming with BRICs

The BRICs Projections

n The motivation: understanding shifts in global spending power

n The goal: a 50-year roadmap of growth and incomes
n The model: two parts to getting richer
n The results: a dramatic change if things go right
n The risks: conditions for converting potential to reality

2
The BRICs Economies—A Growing Force

n In less than 40 years, the BRICs economies could be larger than the G6 in
USD terms.
n China could overtake the US as the world’s largest economy in a little over 30
years. Of the current G6, only the US and Japan may be among the six largest
economies in 2050.
n New demand from the BRICs economies could rival the current G6 within a
decade and dwarf it by 2050.
n Individuals in the BRICs are still likely to be poorer on average than individuals
in the G6 economies, except in Russia.

3
 Dreaming with BRICs

Economic Gravity Shifts to Asia

BRICs Have a Larger US$GDP Than the G6 GDP
GDP (2003 US$bn) The Largest Economies in 2050
(2003 US$bn) in Less Than 40 Years
50000
100,000
By 2040: 45000
90,000 BRICs
BRICS 40000
G6
80,000 2025: BRICs overtake
economies the G6 35000
70,000
over half as 30000
60,000 large as the G6
50,000 25000

40,000 20000

30,000 15000

20,000 10000
10,000 5000
0 0
2000 2010 2020 2030 2040 2050 Ch US In Jpn Br Russ UK Ger Fr It
GS BRICs Model Projections. GS BRICs Model Projections.

4
 Dreaming with BRICs

Overtaking the G6: China Moves into Pole Position

UK Germany Japan US

China

Italy France Germany Japan

India

Italy France Germany

Russia

Italy France Germany

Brazil

G6

BRICs

*cars indicate when BRICs US$GDP exceeds US$GDP in the G6

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
GS BRICs Model Projections.

5
 Dreaming with BRICs

A Small But Rapidly Growing Share of the World

25 Share of World Economy (USD), %

20

2003 2010 2020

15

10

0
Brazil Russia India China BRICS

6
 Dreaming with BRICs

Already Punching Above Their Weight in Global Growth

50 Projected Share of World Growth (USD), %
45

40

35 2003 2010 2020

30

25

20

15

10

0
Brazil Russia India China BRICS

7
 Dreaming with BRICs

Strong Growth, but a Gradual Decline

real GDP
growth (%yoy)
9%

8%
7%

6%

5%

4%

3% Brazil
2% China

1% India
Russia
0%
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
GS BRICs Model Projections.

8
India's Labor Force Dominates the BRICs and Today's G6
By 2030
1200
Labor force,
millions
1000

800
Brazil China
600 India Russia
Germany Japan
400
US

200

0
2000 2010 2020 2030 2040 2050
US Census projections; GS Economics
9
 Dreaming with BRICs

Working Age Share Peaks Later than in Developed World

Working Age Population Projected To

% of total Decline
population
70
working age population = share
68 of population aged 15-60
66
64
62
60
58 Brazil
56 Russia
54 India

52
China
G6
50
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

10
 Dreaming with BRICs

Demand From the BRICs Could Quadruple G6 Demand

Annual increase
in US$GDP
(2003 $USbn)
5,000
$4,517
4,500 BRICs
4,000 G6

3,500
3,000
2,500
2,000 $1,594
1,500 $1,137
1,000 $656
$521 $470
500
0
2010 2030 2050
GS BRICs Model Projections.
11
 Dreaming with BRICs

China is the biggest (but not the only) growth story

Annual Rise in Spending Power
(2003 $USbn)
3,000

US
2,500
China
2,000
Brazil, Russia and India
1,500

1,000

500

0
2010 2030 2050

12
 Dreaming with BRICs

Income Per Capita Rising…

GDP per capita
(2003 US$)
60,000

50,000 India
Brazil
40,000
China
30,000 Russia

20,000

10,000

0
2000 2010 2020 2030 2040 2050
GS BRICs Model Projections.

13
 Dreaming with BRICs

…and Gradually Catching Up with US Levels

140,000
US GDP Per
120,000 Capita (US$bn)
China GDP Per
100,000
Capita (US$bn)

80,000

60,000

40,000

20,000 37%
32%
26%
17% 21%
0
2000 2010 2020 2030 2040 2050
GS BRICs Model Projections.

14
 Dreaming with BRICs

BRICs Currencies Could Appreciate By Close to 300%

Brazil 129%

Russia 208%

India 281%

China 289%

0% 50% 100% 150% 200% 250% 300% 350%

Real exchange rate appreciation (%)
GS BRICs Model Projections.

15
 Dreaming with BRICs

Conditions Matter: What Models Would Have Said in 1960

Projected average annual GDP growth, 1960-2000 (%)
8

7 Actual
Predicted
6

0
Arg Br Fr Ger HK In It Jp Ko UK US
GS BRICs Model Projections.

16
 Dreaming with BRICs

Ensuring the Conditions For Growth

n Sound, stable macroeconomic policies

n Strong, stable political institutions
n Openness
n High levels of education
n ‘Miracle’ conditions are not needed.

17
 Dreaming with BRICs

The Largest Economies Will Not Be the Richest

2003 US$bn GDP and GDP per capita in 2050 2003 US$
50,000 90,000
US$GDP
45,000 80,000
40,000 US$GDP per
70,000
capita
35,000
60,000
30,000
50,000
25,000
40,000
20,000
30,000
15,000
10,000 20,000

5,000 10,000
0 0
Ch US In Jp Br Russ UK Ger Fr It
GS BRICs Model Projections.

18
 Dreaming with BRICs

Implications of the Rise of the BRICs

n A (further) shift in economic power towards Asia.

n The rise and reshaping of regional networks.
n Changing consumption and production patterns.
n A flow of capital back to the BRICs as the world rebalances.
n Appreciation – through exchange rates or through prices?
n The need to reshape international institutions.

19
The BRICs Market Projections

n The motivation: understanding shifts in global markets

n The goal: a long-term roadmap of growth, incomes and demand patterns
n The model: three steps to a market projection
n The results: a dramatic change if things go right
n The risks: conditions for converting potential to reality; supply dynamics and
the competitive landscape

20
 Next Decade Is the Peak For Global Growth
5.5
Real Growth,
%yoy
5
Global Growth
4.5 (PPP-weighted)

3.5

2.5

2
1990 2000 2010 2020 2030 2040 2050

21
BRICs Could Make Up Close to 30% of the World
Economy By 2025
30
Projected Share of World Economy
(USD), %

25 2005
2015
20 2025

15

10

0
Brazil Russia India China BRICs

22
The Middle Class in the BRICs Could Grow
Fourfold in the Next Decade
Number,
billions
4.0

3.5 Number of People With

Income Over $3,000 in
3.0
the BRICs
2.5

2.0

1.5

1.0

0.5

0.0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
GS BRICs Model Projections.
23
A Dramatic Rise in China's and India's Middle Classes
Number,
millions
1,600

1,400 China

1,200 India

1,000

800

600

400

200

0
2005 2015 2025 2035 2045
GS BRICs Model Projections.
24
A Large High-Income Pool Could Emerge in the BRICs

New People With Incomes Above

$15000 in the BRICs by 2025

Japan 2025 Total Population

Germany 2025 Total Population

UK 2025 Total Population

France 2025 Total Population

Italy 2025 Total Population

0 50 100 150 200 250

Source: US Census; GS BRICs Model Projections. Number, millions

25
Global Autos Demand Growth Peaks Later
Growth, Growth,
% yoy % yoy
3.0 4.0

2.5
3.5

2.0
3.0

1.5
2.5
1.0

Global Oil Demand Growth (lhs) 2.0

0.5
Global Autos Demand Growth (rhs)
0.0 1.5
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
GS BRICs Model Projections.
26
Global Demand Growth for Energy and Oil Stays
Strong Throughout Next Two Decades
6.0
%yoy
growth GS Forecasts
5.0

Global Energy Demand

4.0 Growth
Global Oil Demand
3.0 Growth

2.0

1.0

0.0

-1.0
1990 2000 2010 2020 2030 2040 2050
27
 BRICs Share of Global Oil Demand
18
% of Global GS Forecasts
16 Oil Demand

14
Brazil
12 China
10 India
Russia
8

0
65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 50

28
Projected Patterns in Global Oil Demand

0.040
Oil per Capita, thousands bbl/day
0.035
Brazil Russia
0.030
India China
0.025

0.020

0.015

0.010

0.005

0.000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
GS BRICs Model Projections.
29
 Car Ownership in 2025
250
Car Ownership Projections
Number, millions
200

150

100

50

0
India

Italy
Russia
Brazil

Taiwan
China

Germany
Japan

France

Korea
UK
US

30
 China and India Could See Double-Digit Car Ownership
Growth Through the Mid-2020s and Mid-2030s Respectively
%yoy
20
18
16 India China
14 BRICs Global
12
10
8
6
4
2
0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
GS BRICs Model Projections. 31
Timing For Sweet Spots Varies Across the BRICs

700,000
Car Ownership Projections Number, thousands
600,000
Brazil
500,000
Russia
400,000 India
China
300,000

200,000

100,000

0
2000 2010 2020 2030 2040 2050

GS BRICs Model Projections.

32
Autos Per Capita Remain Higher in
Russia and Brazil Than in China and India
700
Autos per 1,000
people
600

500 Brazil
Russia
400
India
China
300

200

100

0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
33
BRICs Weight in Global Market Cap Set To Rise
Significantly, Any Way We Cut It
50
Share of Global
Market Cap (%)
45

40
BRICs Share of Global Market
Cap (Constant Ratios)
35 BRICs Share of Global Market
Cap (Market-Based)
30
BRICs Share of Global Market
25 Cap (Bank-Based)

20

15

10

0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
34
BRICs Market Capitalization Could Grow Five-Fold by 2025
US$bn
14,000
BRICs
12,000
Europe ex-UK

10,000

8,000

6,000

4,000

2,000

0
2005 2010 2015 2020 2025

35
The Experience of Korea and the NIEs
China Heading Down Korea's
Consumption Path? Asia's Oil Shares Rose Sharply
Cars Per %
Capita
10
0.2
9

0.2 8
China
7
0.1 Korea
6

0.1 5

4
0.1
3
NIE
0.0 2 Japan
1
0.0 0
0 5,000 10,000 15,000 65 68 71 74 77 80 83 86 89 92 95 98 01
Income Per Capita (USD, PPP)

36
Plausibility Checks

Oil per capita,

Autos per Oil
capita
Autos Barrels/pd
1000 0.08

900 Benchmark Country Brazil

0.07 Benchmark Country Brazil
Russia India
800 Russia India
China
0.06
700 China

600 0.05

500 0.04
400
0.03
300
200 0.02

100 0.01
0
0.00
US Japan Korea Germany
US Japan Korea Germany

37
The BRICs Impact on Global Markets: A Transforming Event

n A sequence of pressures: crude, cars then capital

n The growth of a BRICs middle class could be a key market dynamic
n The timing of impact varies across the BRICs
n The next decade is likely to be the peak period for resource pressure

38
 Dreaming with BRICs

Appendix I: BRICs by Country

Brazil
n Over the next 50 years, Brazil’s GDP growth rate averages 3.6%.
n The size of Brazil’s economy overtakes Italy by 2025; France by 2031; UK and
Germany by 2036.
n Challenges: lack of openness, lower education levels, lower savings and
investment, higher public and foreign debt.
n Lower convergence rate at first, then catch-up with China.
n Critical issues: Foreign and public debt constraints; Infrastructure; Openness to
trade

39
 Dreaming with BRICs

China

n China’s GDP growth rate falls to 5% in 2020 from its 8.1% growth rate
projected for 2003.
n By the mid-2040s, growth slows to around 3.5%.
n Even so, China becomes the world’s largest economy by 2041.
n High investment rates, tapers off though projection period.
n China’s per capita income could be roughly what the developed economies are
now (about US$30,000 per capita).
n Critical issues: Financial System Reform; Political Transition.

40
 Dreaming with BRICs

India

n India’s growth rate remains above 5% throughout the period.

n India’s GDP outstrips that of Japan by 2032.
n India could raise its income per capita in 2050 to 35 times current levels.
n Still, India’s income per capita will be significantly lower than any of the
countries we look at.
n Critical issues: Openness; Basic Education; Policy Coherence.

41
 Dreaming with BRICs

Russia

n By 2050, Russia’s GDP per capita is by far the highest of the BRICs.
n Demographic dynamics drive GDP per capita path.
n Russia’s economy overtakes Italy in 2018; France in 2024; UK in 2027 and
Germany in 2028.
n Critical issues: Life after Putin; The Transition from Oil.

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