The World in 2050: How big will the major emergingmarket economies get and how can the OECD compete?
In this paper we develop a methodology for projecting the relative size in the periodto 2050 of the 17 largest economies in the world in purchasing power parity (PPP)terms. These comprise the current G7 (US, Japan, Germany, UK, France, Italy andCanada), plus Spain, Australia and South Korea, and the seven largest emergingmarket economies, which we refer to collectively as the ‘E7’ (China, India, Brazil,Russia, Indonesia, Mexico and Turkey).The first important conclusion from this research is that there is no single right way tomeasure the relative size of emerging economies such as China and India as comparedto the established OECD economies. Depending on the purpose of the exercise, GDPat either market exchange rates or PPP rates may be most appropriate measure. Ingeneral, GDP at PPPs is a better indicator of average living standards or volumes of outputs or inputs, while GDP at current exchange rates is a better measure of the sizeof markets for OECD exporters and investors operating in hard currencies. For long-term investments, however, it is important to take into account the likely rise in realmarket exchange rates in emerging economies towards their PPP rates in the long run,although our modelling results suggest that, for countries such as China and India, thisexchange rate adjustment may still not be fully complete even by 2050.The second conclusion is that, in our base case projections, the E7 economies will by2050 be around 25% larger than the current G7 when measured in dollar terms atmarket exchange rates (MER), or around 75% larger in PPP terms. In contrast, the E7is currently only around 20% of the size of the G7 at market exchange rates andaround 75% of its size in PPP terms (see Figure A below).
Figure A: Relative size of G7 and E7 economies
0200004000060000800001000001200001400002005 MER2050 MER2005 PPP2050 PPP
$ b i l l i o n ( 2 0 0 4 r e a l v a l u e s )
G7 GDPE7 GDP
PricewaterhouseCoopers – March 2006