Economics Department

Looking to 2060: Long-term global growth prospects

 

This article was originally published in Bloomberg Briefs - Europe

The balance of economic power will shift over the next half century. After recovery from the current crisis, global GDP could grow around 3 percent a year on average in the next 50 years. Growth in the 34-nation OECD area is projected at about 2 percent annually to 2060, with declining rates in many high-income countries.

Emerging countries will account for an ever-increasing share of output. While growth rates in emerging countries are expected to continue outpacing those in developed nations, the difference will narrow over the coming decades. Emerging economies’ growth will drop from the average 7 percent annual rates seen over the past decade to around 5 percent in the 2020s and about half that by the 2050s.

These growth patterns will lead to radical changes in the relative size of economies, with fast-growing emerging economies comprising an increasing share of global output. The U.S. is the largest economy today, accounting for around 23 percent of global output, but it will be exceeded by China, perhaps as soon as 2016. The combined GDP of China and India will soon surpass that of the G-7 economies, and will exceed that of the entire current OECD membership by 2060. Today’s economic heavyweights will lose ground to younger emerging powers like Indonesia and Brazil.

Education and productivity improvements will drive growth in both developed and emerging economies, with productivity gains being the most powerful driver. Countries with relatively low productivity today — such as India, China, Indonesia, Brazil and many nations in Eastern Europe — will experience faster productivity growth than the more developed economies as technology uptake and better business governance lead to convergence with advanced countries.

For some lower-income countries with comparatively low levels of average education — India, Turkey, China, Portugal and South Africa — the build up of skills will also add to growth. With most OECD economies — and also some emerging economies, such as China — expected to be hit by aging and declining working-age populations, labor is not expected to make major contributions to growth. Longer working lives will partially offset the decline in working-age populations.

The radical shift in global GDP will be matched by a trend of converging GDP per capita between developing and emerging economies. While GDP per capita in the poorest economies will more than quadruple over the 2011 to 2060 period, it will only double in the richest economies. Faster growth in low-income and emerging countries will reduce the wide gaps in living standards seen today with advanced countries, though large cross-country differences will persist. China will experience more than a sevenfold increase of its per capita income over the coming half century, though living standards will still only be 60 percent of those in the leading countries in 2060.

OECD research shows the outlook for global growth and living standards improves dramatically if countries implement structural reforms. Bolder reforms in labor and product markets could raise long-term living standards by an average of 16 percent relative to the baseline scenario, which only assumes moderate policy improvements. Ambitious product market reforms that raise productivity growth could increase global GDP by an average of about 10 percent, while policies that encourage labour force participation could increase GDP by more than 6 percent on average.

Without ambitious reforms, global imbalances may continue widening through 2030, potentially undermining future growth. Deeper structural reforms and faster fiscal consolidation, on the other hand, could reduce imbalances by as much as a quarter over the same period.

Inaction is no longer a choice OECD nations or emerging economies can afford.

The balance of economic power will shift over the next half century. After recovery from the current crisis, global GDP could grow around 3 percent a year on average in the next 50 years. Growth in the 34-nation OECD area is projected at about 2 percent annually to 2060, with declining rates in many high-income countries.

 

Emerging countries will account for an ever-increasing share of output. While growth rates in emerging countries are expected to continue outpacing those in developed nations, the difference will narrow over the coming decades. Emerging economies’ growth will drop from the average 7 percent annual rates seen over the past decade to around 5 percent in the 2020s and about half that by the 2050s.

 

 

These growth patterns will lead to radical changes in the relative size of economies, with fast-growing emerging economies comprising an increasing share of global output. The U.S. is the largest economy today, accounting for around 23 percent of global output, but it will be exceeded by China, perhaps as soon as 2016. The combined GDP of China and India will soon surpass that of the G-7 economies, and will exceed that of the entire current OECD membership by 2060. Today’s economic heavyweights will lose ground to younger emerging powers like Indonesia and Brazil.

 

 

Education and productivity improvements will drive growth in both developed and emerging economies, with productivity gains being the most powerful driver. Countries with relatively low productivity today — such as India, China, Indonesia, Brazil and many nations in Eastern Europe — will experience faster productivity growth than the more developed economies as technology uptake and better business governance lead to convergence with advanced countries.

 

 

For some lower-income countries with comparatively low levels of average education — India, Turkey, China, Portugal and South Africa — the build up of skills will also add to growth. With most OECD economies — and also some emerging economies, such as China — expected to be hit by aging and declining working-age populations, labor is not expected to make major contributions to growth. Longer working lives will partially offset the decline in working-age populations.

 

The radical shift in global GDP will be matched by a trend of converging GDP per capita between developing and emerging economies. While GDP per capita in the poorest economies will more than quadruple over the 2011 to 2060 period, it will only double in the richest economies. Faster growth in low-income and emerging countries will reduce the wide gaps in living standards seen today with advanced countries, though large cross-country differences will persist. China will experience more than a sevenfold increase of its per capita income over the coming half century, though living standards will still only be 60 percent of those in the leading countries in 2060.

 

 

OECD research shows the outlook for global growth and living standards improves dramatically if countries implement structural reforms. Bolder reforms in labor and product markets could raise long-term living standards by an average of 16 percent relative to the baseline scenario, which only assumes moderate policy improvements. Ambitious product market reforms that raise productivity growth could increase global GDP by an average of about 10 percent, while policies that encourage labour force participation could increase GDP by more than 6 percent on average.

 

 

Without ambitious reforms, global imbalances may continue widening through 2030, potentially undermining future growth. Deeper structural reforms and faster fiscal consolidation, on the other hand, could reduce imbalances by as much as a quarter over the same period.

 

 

Inaction is no longer a choice OECD nations or emerging economies can afford.

 

 

 

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