Developing economies to eclipse west by 2060, OECD forecasts

Dramatic shift in balance of economic power over next five decades analysed in new OECD model

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Looking to 2060: A Global Vision of Long-Term Growth, from the OECD

China, India and the rest of the developing world will eclipse the west in a dramatic shift in the balance of economic power over the next 50 years, according to research by the Organisation for Economic Co-operation and Development (OECD).

The next five decades will see major changes in country shares in global output. The Paris-based thinktank's Looking to 2060: Long-Term Global Growth Prospects report uses a new economic model which forecasts that China will overtake the eurozone in 2012 and the US within the next four years to become the largest economy in the world. India is in the process of overtaking Japan and is forecast to pass the eurozone in about 20 years.

The chart below shows the latest (2011) estimates of the composition of world gross domestic product (GDP) on the basis of purchasing power parity, a method of comparing output across countries without distortion from differing price levels. The current output of China (17%) and India (6.6%) totals around a third of that of the 34 developed economies that make up the OECD (64.7%).

Composition of global GDP in 2011. Source: OECD

But by 2060, as the chart below shows, the combined GDP of China (27.8%) and India (18.2%) will be larger than that of the OECD – and the total output of China, India and the rest of the developing world (57.7%) will be greater than that of developed OECD and non-OECD countries (42.3%).

Composition of global GDP in 2060. Source: OECD

Developing world growth will continue to outpace the OECD, but the difference will narrow over coming decades. From more than 7% a year over the last decade, non-OECD growth will fall to around 5% in the 2020s and to about half that by the 2050s. Trend growth for the OECD is forecast to be 1.75% to 2.25% a year.

Until 2020, China will have the highest growth rate among the countries included in the report, but will then be overtaken by both India and Indonesia.

Average growth in GDP 2011-2060. Source: OECD

GDP per capita will tend to converge across countries - but will still leave "significant gaps in living standards" between advanced and emerging economies, the report said.

Over the next half century, the unweighted average of GDP per capita (in 2005 PPP terms), is predicted to grow by roughly 3% annually in the non-OECD area, as against 1.7% in the OECD area.

As a result, by 2060 GDP per capita of the currently poorest economies will more than quadruple, whereas it will only double in the richest economies.
China and India will experience more than a seven-fold increase of their income per capita by 2060.

The extent of the catch-up is more pronounced in China reflecting the momentum of particularly strong productivity growth and rising capital intensity over the last decade. This will bring China 25% above the current income level of the US, while income per capita in India will reach only around half the current US level.

Average growth in GDP per capita 2011-2060. Source: OECD

The OECD's economic model makes a number of other assumptions. Trend unemployment in the west is assumed to gradually return to its pre-crisis level and marked improvements in education are projected in India, China, Turkey, Portugal and South Africa.

Productivity will be main driver of growth. Countries which currently have comparatively low productivity levels – India, China, Indonesia, Brazil and Eastern Europe – are projected to grow faster as they catch up with more developed economies.

The table below shows baseline growth forecast by the model (a world trend average of around 3% a year) - although the OECD said market reforms which raise productivity growth could increase global GDP by an additional 10% and labour market reforms could boost growth by another 6%.

Data summary

Source: OECD - A Global Vision of Long-Term Growth

 
Average growth in GDP 1995-2011
Average growth in GDP 2011-2030
Average growth in GDP 2030-2060
Average growth in GDP 2011-2060
Average growth in GDP per capita 1995-2011
Average growth in GDP per capita 2011-2030
Average growth in GDP per capita 2030-2060
Average growth in GDP per capita 2011-2060
Australia 3.3 3.1 2.2 2.6 1.9 2 1.7 1.8
Austria 2 1.5 1.4 1.4 1.7 1.2 1.4 1.3
Belgium 1.8 2.1 2 2 1.3 1.5 1.7 1.6
Canada 2.6 2.1 2.3 2.2 1.6 1.3 1.8 1.6
Switzerland 1.7 2.2 2 2.1 1 1.5 1.8 1.7
Chile 3.9 4 2 2.8 2.8 3.4 2 2.5
Czech Republic 3.2 2.7 1.8 2.1 3.1 2.6 1.9 2.2
Germany 1.4 1.3 1 1.1 1.4 1.5 1.5 1.5
Denmark 1.5 1.3 2.1 1.8 1.1 1 2 1.6
Spain 2.9 2 1.4 1.7 1.9 1.6 1.3 1.4
Estonia 3.6 2.8 2 2.4 3.8 3.1 2.3 2.6
Finland 2.5 2.1 1.6 1.8 2.2 1.8 1.5 1.6
France 1.7 2 1.4 1.6 1.1 1.6 1.2 1.3
United Kingdom 2.3 1.9 2.2 2.1 1.9 1.3 1.8 1.6
Greece 2.4 1.8 1.2 1.4 1.9 1.7 1.3 1.4
Hungary 2.4 2.5 1.7 2 2.6 2.7 2 2.3
Ireland 4.7 2.1 1.7 1.9 3.2 1.3 0.9 1.1
Iceland 3 2.2 2.4 2.3 1.8 1.2 1.9 1.6
Israel 3.7 2.7 2.6 2.6 1.5 1.3 1.6 1.5
Italy 1 1.3 1.5 1.4 0.6 0.9 1.5 1.3
Japan 0.9 1.2 1.4 1.3 0.8 1.4 1.9 1.7
Korea 4.6 2.7 1 1.6 4 2.5 1.4 1.8
Luxembourg 3.8 1.8 0.6 1.1 2.3 0.7 0.1 0.3
Mexico 2.6 3.4 2.7 3 1.2 2.5 2.6 2.5
Netherlands 2.2 1.8 1.6 1.7 1.7 1.5 1.7 1.6
Norway 3 2.9 1.9 2.3 2.2 2 1.4 1.6
New Zealand 2.7 2.7 2.6 2.6 1.6 1.8 2.2 2
Poland 4.3 2.6 1 1.6 4.4 2.6 1.4 1.9
Portugal 1.7 1.4 1.4 1.4 1.3 1.4 1.6 1.5
Slovak Republic 4.5 2.9 1.4 2 4.4 2.8 1.7 2.1
Slovenia 2.6 2 1.6 1.8 2.2 1.7 1.8 1.8
Sweden 2.5 2.4 1.8 2 2.1 1.7 1.5 1.6
Turkey 4.2 4.5 1.9 2.9 2.8 3.6 1.8 2.5
United States 2.5 2.3 2 2.1 1.5 1.5 1.5 1.5
Argentina 3.6 3.6 2.2 2.7 2.6 2.9 1.9 2.3
Brazil 3.3 4.1 2 2.8 2.1 3.4 2.1 2.6
China 10 6.6 2.3 4 9.3 6.4 2.8 4.2
Indonesia 4.4 5.3 3.4 4.1 3.1 4.5 3.3 3.8
India 7.5 6.7 4 5.1 5.8 5.6 3.6 4.4
Russia 5.1 3 1.3 1.9 5.4 3.2 1.7 2.3
Saudi Arabia 4.4 4.2 2.4 3.1 1.3 2.5 1.7 2
South Africa 3.4 3.9 2.5 3 2.1 3.4 2.3 2.7

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