Sometimes it’s easier to look forward a few years than to look at a few months, and this is certainly one of those times.
One can only guess that the pandemic will be over by summer, but one can be sure that in five to ten years it will become a distant memory.
Eventually, by the late 1920s, the scars of the so-called 1918/19 Spanish flu pandemic had long faded, only to be replaced by other, even more troubling issues.
But what will economists, a breed not known for their accurate predictions, say about the world economy a decade from now?
Well, a little bit actually. Goldman Sachs popularized long-term forecasting with its BRIC reports in 2001 and 2003. Its economic team leader, Jim O’Neill, now Lord O’Neill, had a clever idea to use the economic growth model to show that the four largest emerging economies, Brazil, Russia, India and China, were the most important of the developed world. economies will grow at a much faster rate. And the abbreviation stuck.
As expected, the description was incorrect. China and India have done much better than expected, and now China is likely to overtake the United States to become the world’s largest economy by 2030 instead of 2040. Russia and Brazil made the situation worse for various reasons.
But the general idea of the work was correct. Growth and with it the economic impact shifted from developed economies to emerging economies.
Goldman Sachs’ work has been edited and updated by others, most recently by the Center for Economics and Business Research in London in its World Economic League Table. Published just after Christmas.
Its main message is that China will overtake the United States in 2030, that India will overtake France next year and come third in 2031, ahead of China and the United States, and that Germany will overtake Japan in 2033. .
What about UK? Well, the report is positive about the country’s growth prospects, suggesting that it will move far enough away from France to make it a 16% larger economy by 2036.
Many of these big predictions are intuitively clear. China and India, with their vast populations, were the largest economies in the world until the Industrial Revolution began in the 19th century and pushed Britain, Europe, and then America into what we now call developed country status.
Today, emerging countries are implementing and advancing technologies developed (mainly) in the West. China is now a middle-income country, not a poor country.
However, the positive outlook for the UK may come as little surprise, given the gloom so often reported on the country’s economic outlook, not just from Brexit and the pandemic, but also from rising inflation recently.
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In fact, the overall outlook for the UK is almost the same as calculated by Goldman Sachs 20 years ago. In that original report, the UK was set to become not only a bigger economy than France, but even bigger than Germany by 2040.
The main reason is demographics. Youth and workforce size relative to population are important determinants of economic development. The UK population is slightly smaller than most of Europe; We age, so to speak, more slowly than the rest of the pack.
And we seem to be particularly attractive to immigrants. In fact, the fact that Germany is doing much better than what Goldman Sachs suggested in this original report is due in large part to the fact that it has attracted a lot more immigrants than you might expect.
This is encouraging for the UK, but relatively minor changes in the pecking order of European countries are far less significant than the huge changes in economic power that will ultimately result. We don’t notice it because the change is minor in any given year. But a decade or more is too long. I will choose five major themes that will shape this decade.
The first is the most obvious: the rise of China. It doesn’t matter if it happens in the United States in 2030 or 2035. It will happen and we have to accept it, with all its advantages and disadvantages.
Second, as is evident, India is growing in importance and will pose new challenges, especially for its relations with China.
Third, and it may come as a surprise, the United States will continue to be the dominant economy not only in the developed world. It will become more influential and will continue to outperform Europe and Japan, as has been the case over the past 25 years.
This is due not only to its technological potential, but also to its relatively young population and its attractiveness to well-educated immigrants.
Fourth, Russia’s weakness, again perhaps a surprise. It is not a very large economy given its population and vast territorial spread: smaller than Italy and not much larger than Spain. And in relative terms, that’s probably going to happen.
Finally, perhaps most encouraging of all, even if climate change will reduce consumer spending as businesses forgo the costs of decarbonization, living standards in the developed world may still rise.
This transformation will be a huge challenge, but we can certainly feel a little more optimistic about life after COVID.
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