The UK is projected to be the “fastest growing economy in the G7 over the whole period to 2050”, according to a new report by PwC.
“The long view: how will the global economic order change by 2050?” report projects GDP to 2050 for 32 of the largest economies in the world, which, when combined, currently account for approximately 85% of global GDP.
The report forecasts average annual growth for the UK of 1.9%, and projects that the country will fall “just one place” from ninth to tenth in global economy rankings in purchasing power parity (PPP) terms by 2050. When considering the rankings in terms of GDP at market exchange rates, the UK is projected to fall from fifth to ninth place by 2050.
The report identified a “medium-term drag” as a result of Brexit over the years to 2020, but said that the country would remain in the top ten economies despite the exit from the EU.
Achieving long-term growth potential was dependent on “remaining open to talented workers”, however, as well as developing “successful trade links with fast-growing emerging economies” to offset a “likely weakening of trade and investment links with the EU after Brexit”.
John Hawksworth, chief economist at PwC said: “After a year of major political shocks with the Brexit vote and the election of president Trump, it might seem brave to opine on economic prospects for 2017, let alone 2050. But a long-term view is crucial for considering areas like pensions, healthcare, energy and climate change, housing, transport and other infrastructure investment. By looking beyond unpredictable short-term economic and political cycles and focusing on fundamentals, long-term growth projections can actually be more reliable than short-term forecasts.
“Our relatively positive long-term growth projection for the UK is due to favourable demographic factors and a relatively flexible economy by European standards. However, developing successful trade and investment links with faster-growing emerging economies will be critical to achieving this, offsetting probable weaker trade links with the EU after Brexit.”
Economic power shift from G7 to E7
Emerging markets will “continue to be the growth engine of the global economy”, the report said. The E7, comprising of Brazil, China, India, Indonesia, Mexico, Russia and Turkey, had the potential to increase their combined share of global GDP at PPP to nearly 50% by 2050, up from the current share of 37%. The G7’s share of global GDP on the other hand would decline to just over 20%, down from the current share of 31%.
With regard to individual country rankings, China retains its place at the top of table in 2050 with a world GDP at PPP share of 20%. India is projected to rise to second, followed by the US in third. PwC tipped Indonesia for fourth place in the rankings, with Brazil, Russia, Mexico, Japan and Germany rounding out the top nine, followed by the UK in tenth position.
Challenges to growth
Achieving sustainable growth is a challenge for policymakers, said the PwC report.
Five key challenges to growth were highlighted: stagnant global trade growth; demographic change; climate change; rising inequality; and increasing global uncertainty.
In order to boost trade growth, policy makers should engage in global markets, share best practices and support the fluid movement of goods, services and people around the world, the report said.
Governments also had a role to play in order to ensure that the benefits of growth were shared across society and that “vibrant and “dynamic” workforces were created to offset an ageing population. Long-term environmental stability was also a key factor for governments to consider when tackling climate change.
Furthermore, stable governance was crucial to developing resilient economies, as support for “broad-based growth throughout society”. Emerging markets must be able to “attract, and retain, talent, investment and business”, and institutions that influence the political, social and economic incentives of individuals and businesses were fundamental to achieving this. Key institutions include an independent and credible central bank, and a fair and efficient tax regime.
Business opportunities in emerging markets
With long-term growth potential, businesses are encouraged to engage with emerging markets.
The report concluded that flexible business strategies were critical to operating in these markets to successfully address varied consumer segments and economic volatility. Having an in-depth understanding of emerging markets supports business plans and allows companies to take advantage of the opportunities that emerging markets present.
Hawksworth said: “The global economy faces a number of challenges to prosperous economic growth in the long-term. Ageing populations and climate change require forward-thinking policy which equips the workforce to continue to make societal contributions later on in life and promotes sustainable development. Falling global trade growth, rising inequality and increasing global uncertainties are intensifying the need to create diversified economies which offer opportunities for everyone in a broad variety of industries.
“Emerging economies offer great opportunities for business – the numbers in our report make it clear that failure to engage with these markets means missing out on the bulk of economic growth we expect to see in the world economy between now and 2050. To succeed, businesses will need to adopt strategies with the right mix of flexibility and patience to ride out the short-term economic and political volatility that is a normal feature of emerging markets as they mature.”