The World Economy in 2050

At the best of times, economic forecasting can be a challenging endeavor, even when the outlook for the international economy appears relatively clear.  It is therefore even more challenging to attempt to forecast the outlook for the global economy 33 years into the future, to the middle of our current century.  To understand the challenges associated with such long-term forecasting, imagine the economy of 2017 from the point of view of someone from 1984.  Imagine how challenging it would have been for someone from that time to predict the impact that automation, alternative energy, the sharing economy and the rise of emerging markets would have had on the economy.  Back then, the global economy was anything but integrated, which huge swathes of the planet detached from the global economy by political and economic barriers.  Today, many of those formerly detached economies are some of the leading drivers of growth for business and investors from around the world.  

Looking Back 33 Years: Despite the inherent difficulties involved with long-term economic forecasting, some of the changes that took place between 1984 and today were apparent to those who understood how the global economy was changing.  For example, the rise of Asia’s emerging markets was entirely predictable to anyone who understood how Japan was able to develop a world-leading export-driven economy and how the attraction of that region’s vast untapped markets would result in a surge of investment into Asia in the coming years.  Just as predictable was the economic collapse of the Soviet Union, a process that had already been underway for more than a decade by 1984, and was accelerating as technological change accelerated outside of the USSR.  These are good examples of long-term trends that can shed a good deal of light on how long-term economic changes will play out in the coming years and how we can use these examples to determine how the global economy will look 33 years in the future. 

Changes Ahead: Of course, the world in 2050 will, in some ways, be a much different world than today.  Despite the popular opposition to automation that has played such a great role in the political changes of recent years, the world in 2050 will be a far more automated place than it is today, offering hope for countries facing demographic decline, but also making huge segments of the working-age population somewhat redundant.  Likewise, new technologies, processes and scientific breakthroughs are sure to emerge that will alter the shape of many services and industries, just as they did over the past 33 years.  Many of these changes have already begun, but their impact has yet to be fully realized, while others remain solely within the realm of our imaginations.  Nevertheless, despite these “known unknowns” there is much that can be predicted with some degree of confidence with regards to the global economy of 2050, including who will be the leading players within the economy by the middle of this century.

Asian Giants: Barring any massive unforeseen events or developments, predicting which economies will be the largest in the world in 2050 is a fairly straightforward exercise.  For example, most emerging markets are expected to continue to grow at a faster pace than their developed market counterparts, even as growth in most emerging markets is forecast to either slow, or to fall short of the growth rates recorded in previous years.  Among emerging markets, China will continue to expand and is forecast to overtake the United States as the world’s largest economy (not using PPP-based data) sometime around the end of the next decade, as growth rates in China continue to trend slowly downwards.  India, despite its recent slump, is forecast to grow at rates of between 7% and 8% between now and the middle of this century, and at this rate of growth, India will become the world’s third-largest economy within ten years, a position it will retain for the next few decades.  Southeast Asian economies will also continue to grow at a strong pace, and that region’s economy as a whole will be larger than that of the combined European Union by the middle of this century.  Outside of Asia, the rapid economic growth of emerging markets that had been hoped for in previous years has been replaced by much more subdued expectations, and this will result in these economies becoming larger players in the global economy, but still being dwarfed by the world’s largest economies, including their emerging market counterparts in Asia.

Developed Economies: Among developed economies, the United States will remain the leader, even as China eventually overtakes it to become the world’s largest economy.  This is due to the fact that long-term economic growth forecasts for the US are higher than those of most other developed economies, thanks to the country’s capacity for population growth and its strong position is most high-tech, high-growth services and industries.  These advantages are shared by most other “New World” developed economies and this will result in countries such as Canada and Australia also becoming more important players in the global economy in the coming decades.  In contrast, most developed economies in Europe, as well as Japan, are forecast to record relatively low rates of economic growth over the longer-term and this will continue the trend of these countries being overtaken by their faster-growing rivals in terms of the size of their economies.  Of course, some of these economies will have more success at generating growth than others, but demographic and technological challenges will prove to be significant drags for many of these once-powerful economies.

Wealth Levels: While the list of the world’s largest economies will undergo some changes between now and the middle of this century, so too will the list of the world’s wealthiest countries.  In fact, wealth discrepancies between countries will shrink in many cases, particularly as Asian emerging markets continue to close the gap with the world’s leading developed economies in terms of wealth levels.  By the middle of this century, the world’s wealthiest larger economies will remain the “New World” economies, much the same as today.  They will be followed by those developed economies that are forecast to record relatively stable (if lower) rates of growth in the coming decades.  In contrast, developed countries such as Japan (which topped this table as late as the early 1990s) and Italy that are forecast to record very low rates of long-term growth will see their relative wealth levels fall significantly by 2050.  Meanwhile, China and some of its fast-growing Asian neighbors will continue their climb up the wealth rankings, with China overtaking some countries which are today classified as developed markets.  Outside of Asia, emerging markets that had hoped to close the wealth gap with their richer counterparts will see this gap close more slowly than had been expected just a few years ago, unless they can find a way to achieve long-term and sustainable high rates of growth, something they have thus far been unable to do.

Game Changers: As mentioned earlier, the potential for massive unforeseen changes in terms of technology, geopolitics, natural disasters or other events holds the potential to dramatically alter the global economy between now and 2050.  For example, a major conflict involving one or more of the world’s largest economies could cause irreparable harm to that economy, resulting in a major decline in terms of scale and wealth.  Likewise, technological changes or breakthroughs could have different impacts on individual economies, propelling some to rapid growth and others to stagnation or decline.  Climate change could have massive impacts on some economies, devastating coastal economic centers and reducing agricultural output in many areas of the world.  Resource depletion is another factor to watch, while shifting energy usage trends could take away the primary source of income for many economies around the world, while boosting others.  Despite all of these major potential changes, the overall trend with regards to the balance of global economic power will likely stay much the same, with emerging markets in Asia becoming more powerful and wealthy, surpassing those developed economies that cannot grow at a rapid pace in today’s modern world.  This, at least, seems to be a forecast that one can place much confidence in.