The world’s fastest years of economic growth are likely behind us – expansion is slowing as population growth slows, according to Goldman Sachs Research. But emerging economies, and particularly Asian powerhouses, are expected to continue to catch up with wealthier countries.
Goldman Sachs Research presented its first long-term projections for the economies of Brazil, Russia, India and China (BRIC) almost 20 years ago, and in 2011 expanded these estimates to include more countries. The latest version from our economists covers 104 countries, with projections covering the period from now to 2075.
Global potential growth (the rate an economy can sustain without causing too much inflation) is expected to average 2.8% annually between 2024 and 2029 and decline gradually thereafter, according to Goldman Sachs Research. This compares to an average of 3.6% in the decade before the global financial crisis and 3.2% in the 10 years before the Covid pandemic (measured on a market weight basis). Economic expansion is slowing as the global population growth rate has halved over the past 50 years and is now less than 1% — according to UN population projections, population growth will stop by 2075. Lower productivity associated with slowing globalization is also part of the reason , why our economists expect GDP growth to fade.
“Global population control is a necessary condition for long-term environmental sustainability,” Goldman Sachs economists Kevin Daly and Tadas Gedminas wrote in the report. But an aging and slower-growing population will have to contend with rising health care and pension costs. The number of countries facing a serious economic challenge due to population graying is likely to increase steadily in the coming decades.
Emerging economies, led by Asian powerhouses, are growing faster than developed ones, even as real (inflation-adjusted) global GDP growth is slowing. Their share in the global economy will continue to grow, and their incomes should slowly approach the incomes of richer countries. According to Goldman Sachs research, China will overtake the US as the world’s largest economy by 2035, while India is expected to become the world’s second largest by 2075.
China, India and Indonesia slightly exceeded our economists’ forecasts from 2011, while Russia, Brazil and Latin America are significantly below these forecasts. “We expect the weight of global GDP to shift (even) more towards Asia over the next 30 years,” our economists wrote in their latest report. In 2050, according to forecasts, the world’s five largest economies (measured in US dollars) will be China, the United States, India, Indonesia and Germany. Looking out to 2075, the prospects for rapid population growth in Nigeria, Pakistan and Egypt suggest that these economies, with the right policies and institutions in place, could become some of the largest in the world.
The US economy has been exceptional over the past decade. It slightly exceeded our economists’ forecasts for real GDP growth, making it unique among large, developed economies. The dollar also rose sharply during this period, causing the relative value of the US economy to exceed their expectations. Our economists say this feat is unlikely to be repeated, in part because the dollar has appreciated so much that it is well above its fair value on a purchasing power parity (PPP) basis. Furthermore, they argue that “U.S. potential growth remains significantly lower than that of major EM economies, including China and (especially) India.”
Our economists see protectionism and climate change as the two biggest threats to their forecasts. Populist nationalists are in power in some countries, and supply chain disruptions amid Covid have led to a greater focus on resilience and hiring, according to Goldman Sachs Research. This results in a slowdown rather than a reversal of globalization, but risks to globalization that have reduced income inequality between countries are present. In order to continue, there will need to be a greater focus on sharing the benefits of globalization and rising incomes in each country.
When it comes to climate change, many countries have succeeded in decoupling carbon emissions from economic growth, suggesting that this should be achievable for the global economy as a whole. But that doesn’t mean it will be easy. “Achieving sustainable growth requires economic sacrifices and a globally coordinated response, both of which will be politically difficult to achieve,” wrote our economists.