The G20 in 2050

A more complete description of the following model and its results can be found in the Carnegie Policy Outlook entitled "The World Order in 2050."

The world’s economic balance of power is shifting dramatically. By 2050, the United States and Europe, long the traditional leaders of the global economy, will be joined in economic size by emerging markets in Asia and Latin America. China will become the world’s largest economy in 2032, and grow to be 20 percent larger than the United States by 2050. Over the next forty years, nearly 60 percent of G20 economic growth will come from Brazil, China, India, Russia, and Mexico alone. However, these emerging markets will not rise among the world’s richest countries in per capita terms: their average income in 2050 will still be 40 percent below that of the G7 states today. The end of the decades-old correlation between economic size and per capita income will have profound effects on global economic governance. The G20’s recent transformation into the world’s principal economic forum highlights the beginning of a more integrated and complex economic era. 
 

Projecting to 2050

GDP projections for the G20 nations (excluding the EU) are derived from assumptions about labor force growth (drawn from U.S. Census data), rates of investment, and speed of technological change. These projections expand on previous studies, including those done by Goldman Sachs, PricewaterhouseCoopers, and the World Bank, by adjusting for initial quality of governance, education, and infrastructure, as well as updating population and investment rate projections.

Estimates through 2014 draw on the latest IMF forecasts, while subsequent projections are derived from a Cobb-Douglas production function. Projections for 2015 to 2025 are weighted by pre-crisis trends; those for 2025 to 2050 come directly from the model.¹

Average Annual GDP Growth
Percent Change (y/y)

These projections assume that markets stay open, macroeconomic policies remain sound, and catastrophes do not occur. Thus, they provide only an educated assessment of broad developments in the international economy.

Power Shift

Over the next 40 years, the G20 GDP is expected to grow at an average annual rate of 3.6 percent, rising from $38.3 trillion in 2009 to $161.5 trillion in 2050, in real U.S. dollar terms. Nearly 60 percent of this $123 trillion dollar expansion will come from Brazil, Russia, India, China and Mexico (BRIC+M). These five economies will grow at an average rate of 6.1 percent per year, raising their share of G20 GDP from 18.7 percent in 2009 to 49.2 percent in 2050. By contrast, GDP in the G7 will grow by less than 2.1 percent annually, with their share of G20 GDP declining sharply from 72.3 percent ($27.7 trillion) in 2009 to 40.1 percent ($64.7 trillion) in 2050.

In purchasing power parity (PPP) terms, the shift is even more dramatic. Currently, the G7 claims 54.6 percent of G20 PPP GDP, while the BRIC+M economies account for 34.7 percent. In 2050, the BRIC+M economies will be more than twice as large as the G7 in PPP terms, claiming 60.1 percent of G20 PPP GDP, compared to the G7’s 28.6 percent. Furthermore, the BRIC+M economies will be five of the world’s six largest.

The New Triad

China, India, and the United States will emerge as the world’s three largest economies in 2050. Their total GDP, in real U.S. dollar terms, will be over 70 percent more than that of the other G20 countries combined. In China and India alone, GDP is predicted to increase by nearly $60 trillion—the current world GDP—but the wide disparity in per capita GDP among these three will persist. 

After nearly a century as the world’s preeminent economic power, the United States is projected to relinquish this title to China in 2032. However, the current size of the U.S. economy (in 2009, U.S. GDP was nearly four times that of China) and relatively strong annual growth of 2.7 percent will prevent China from severely outpacing it. Consequently, the United States will remain a global leader, though it will undoubtedly be forced to cede some authority to its rising counterpart. Furthermore, the extraordinary per-capita wealth of the United States may actually work against its bid to lead, as the much lower per capita incomes in China and India will be perceived as more representative of the world population, potentially reinforcing their authority.

Rapid annual growth of 5.6 percent and a strengthening currency—the renminbi is predicted to appreciate by more than 1 percent per year against the dollar in real terms—will drive China’s U.S. dollar GDP up from $3.3 trillion in 2009 to $45.6 trillion in 2050. By 2050, China’s economy will be approximately 20 percent larger than that of the United States in real dollar terms and 88 percent larger in PPP terms, even as its labor force shrinks by nearly 18 percent.

Of the G20 countries, India is predicted to grow most rapidly, but its current modest size will prevent it from surpassing either China or the United States in real U.S. dollar terms. India’s PPP GDP, however, will be 97 percent as large as that of the United States by 2050. A growing population—India is expected to become the world’s most populous nation in 2031—and an average exchange rate appreciation of 0.9 percent per year will push annual GDP growth to an average of 6.2 percent. India’s U.S. dollar GDP will balloon to $17.8 trillion in 2050, sixteen times its current $1.1 trillion level.

To retain their historic influence, European nations will increasingly need to conduct foreign policy under an EU banner.

The next forty years will be a critical period for the EU and its 27 members. Currently, Germany, the UK, France, and Italy are the fourth through seventh largest economies in the world. By 2050, the UK, helped by demographic trends, will be the largest of the four, ranking seventh in the world. Italy will be the smallest, ranking fifteenth. PPP GDP in these four countries will be less than half of that in India and less than one-fourth of that in China.

To retain their historic influence, European nations will increasingly need to conduct foreign policy under an EU banner, a shift implied by their recently ratified constitution. In 2009, the total GDP of the EU will be $14.1 trillion, larger than that of any single country. In 2050, assuming the region follows the 1.5 percent average growth rate of its four largest countries, real U.S. dollar GDP will increase to $25.8 trillion, placing it among the three largest economies in the world. Additionally, if a single EU representative were to replace Europe’s four current G20 members, Europe would not only maintain its influence, but the change would also help transform the G20, which is currently too large, into a more effective international forum.

Russia, once one of the world’s great powers, may become a political outlier under this scenario.  Lacking strong membership in regional coalitions (such as the EU) and soon to be surpassed in size by several other developing countries, it risks becoming marginalized under the new economic order. 

Drivers of Growth

Over the next 40 years, technological advancement and domestic investment will play a critical role in changing the shape of the world economy. Model estimates for these inputs are based on historical evidence, but state action could alter their course and dramatically change the direction of growth.

Despite impressive GDP growth in the developing world, relative per capita GDP will take longer to grow.

In advanced economies, technological progress is expected to provide a steady, but moderate, engine for growth, adding between 1.3 and 1.5 percent to growth per year, according to various estimates. The gradual diffusion of established technologies (e.g., electrification and mechanized road transport), as well as rapid adoption of new technologies (e.g., mobile phones), will provide a much more powerful impetus for growth in developing countries, particularly during the next twenty years.

This growth could be even faster, but the low quality of education, infrastructure, governance, and business climate will hold back progress in developing countries. Technological convergence is expected to be lower in India and Indonesia than in China and Russia.

High domestic investment will also play a critical role, particularly in India and China. As countries develop, investment as a percentage of GDP is expected to rise before beginning to converge to 20 percent, the average yearly investment rate in advanced economies. Investment rates are expected to be higher than 20 percent in China, India, and Indonesia, where comparative advantage will shift from labor-intensive to capital-intensive sectors. By contrast, investment in highly industrialized countries, such as the UK and Germany, is projected to be lower, with technological innovation overwhelmingly underpinning growth there instead.

A Changing Paradigm in Global Economic Governance

Despite impressive GDP growth in the developing world, relative per capita GDP (or wealth) will remain low. By 2050, the five largest economies, in both real U.S. dollar and PPP terms, will include three of the G20’s poorest—India, China, and Brazil. In 2009, by contrast, seven of the G20’s largest eight members were among its richest, in U.S. dollar terms.

The strong positive correlation between wealth and size, in real U.S. dollar terms, has been declining since 1990 among the G20 countries. Though it will remain significant through 2020, it is expected to virtually disappear, and turn negative in PPP terms, by 2050.

On an absolute scale, average income in the G20’s ten emerging economies (as defined by the IMF) will rise to only $22,000, less than 60 percent of the average present-day income of the G7 states. When calculated in PPP terms, the average income in emerging markets in 2050 will be slightly larger than that of the G7 in 2009, but still less than half of the G7’s income in 2050.

As low and middle income economies become increasingly powerful, the traditional distinctions between countries will become outdated, raising new questions about global economic leadership.

This dissociation between economic wealth and size will dramatically affect the role and structure of international organizations and financial institutions. As low and middle income economies in Asia and Latin America become increasingly powerful, the traditional distinctions between countries—developed versus developing, creditor versus debtor—will become increasingly outdated, raising new questions about global economic leadership. Will emerging markets’ influence grow with their GDP? Or will inertia keep authority in the hands of the richest and most advanced countries?

With forty years of inscrutable political and economic developments obstructing the view, answers to such questions are difficult to uncover. However, one fact remains certain: the landscape of the global economy is shifting dramatically. International institutions that lack flexibility and representative governance structures will gradually become marginalized. The recent promotion of the G20 over the G8 is just one signal that the power shift has begun.

 Uri Dadush is a senior associate in and the director of Carnegie’s International Economics Program. Bennett Stancil is a Junior Fellow in Carnegie’s International Economics Program.