OECD Report: China By Far the Biggest Economy by 2030
Crystal ball gazing far into the future is folly at the best of times and the latest attempt by the Economics Department of the Organization for Economic Cooperation and Development (OECD) in forecasting world development over the next half century is outright bold, particularly about China and India. So eye-catching was its prediction that China’s Central Television (CCTV) made a rare mention on today’s noon news.
Using 2005 purchasing power parity (PPP) rates, “Looking into 2060: A Global Vision of Long-Term Growth” projects China’s GDP to surpass the Euro Zone within a year and the US within a few. In another 18 years, China will account for 28% of the total output of 42 major economies, compared to 18% for the US, 12% for the Euro Zone, and 4% for Japan. 30 more years on, the OECD sees China staying constant at 28% as India leapfrogs the US to 18% (US drops to 17%), and the Euro Zone and Japan continuing their steady slide to 9% and 3% respectively.
By around 2025, the combined gross domestic product of China and India will likely exceed that of all G7 rich countries and by 2060, more than 1 1/2 times bigger than the entire OECD area (from a mere 1/3 now). In 2010, China and India accounted for less than 1/2 of G7 GDP.
Improvements in productivity will serve as the biggest driver of growth in the emerging world. Collectively, those countries currently with relatively low productivity levels such as the BRICs and newly emerging countries/regions like Indonesia and Eastern Europe will grow faster than more developed countries, facilitated by greater trade openness, wider technological diffusion, and the strength of domestic competition.
Rising incomes in relatively high-saving China and India plus fiscal consolidation in the indebted West and Japan, will raise the global savings rate. This means capital accumulation will remain fairly stable until around 2030. Afterwards, that rate gradually falls as demographic developments, particularly rapid aging in China, exert their impact coupled with slower growth overall in emerging countries.
Rapid aging in Asia, Eastern Europe, and Southern Europe will put a drag on growth. China faces an increasingly severe problem so the OECD expects India and Indonesia to overtake China’s growth rate by the end of this decade. On the other hand, improvements in education leading to the further build-up of human capital will add significantly to GDP growth in China and India over the next 5 decades.
Although the rapid ‘catch-up’ of China and India will bring about a seven-fold increase in per capita incomes, China’s living standard will still just be 25% higher than current US levels or about 60% of the US in 2060. This would be slightly behind Spain and France but ahead of Italy. Meanwhile, India should reach 1/2 of current US levels. According to World Bank, IMF, and CIA charts, at the end of 2011, China’s PPP per capita GDP hovered around $8400 to $8500 while nominal GDP stood in the neighbourhood of $5400. By contrast, India’s PPP income is just above $3000 and nominal around $1500.
As for Canada, the OECD report envisages a bright future, projecting it to continue leading the G7, averaging a 2.2% growth rate over the next 50 years. Only the US and the UK will come close, averaging 2.1%. The OECD’s expectations on Canadian growth are based on a continuingly growing work force, albeit more slowly due to retiring baby boomers. Japan and Germany will experience contractions, reducing overall per capita income levels. Canada’s per capita income will be near the top, just behind Japan among the G7.