Get ready for 'BRIC' power bloc: Goldman
Jacqueline Thorpe
Financial Post
Friday, October 03, 2003
Economists have a hard enough time predicting gross domestic product in the next quarter let alone the next half
century, but Goldman Sachs has revved up its econometric models and taken a stab at it. What it has come up with is a
radically different world economy as Brazil, Russia, India and China -- the "BRICs" -- power their way to the top.
Among the current economic heavyweights, only the United States and Japan will have managed to hold their own,
according to Dominic Wilson and Roopa Purushothaman at the Wall Street investment firm. The United Kingdom,
Germany, France, Italy and Canada all fall far behind.
The new Group of Six will be led by China with estimated gross domestic product of nearly US$45-trillion in 2050,
followed by the United States at US$35-trillion and India at about US$30-trillion. Bringing up the rear with much smaller
GDPs will be Japan at around US$6-trillion, followed by Brazil and Russia.
In total, the BRIC economies are now worth less than 15% of the current G6, in U.S. dollar terms. The economists predict
that by 2025 the BRIC economies will be more than half as large as the current G6 and in less than 40 years they will
surpass the G6. (With GDP of less than US$1-trillion, Canada is not part of the G6).
The shift will take place steadily over the period but is most dramatic in the first 30 years. Already, China's economy is
only a few years away from eclipsing the United Kingdom and Germany in GDP, having already overtaken both Italy and
Canada.
About two-thirds of the increase in U.S. dollar GDP among the BRICs will come from higher growth and the rest from
currency appreciation. The BRICs' real exchange rates could appreciate by up to 300% over the next 50 years, an
average of 2.5% a year.
Mr. Wilson and Ms. Purushothaman used the latest demographic projections and a model of capital accumulation and
productivity growth to come -- not just extrapolations of current growth rates.
They also went back in time and used the same models to see if they would have accurately predicted current growth
rates of 11 developed and developing countries. They found the results encouraging though there was a wider margin
of error in developing countries.
Demographics are the driving force behind the BRICs' advance, as fast growing populations in China and India raise
output. Indeed, while the BRICs' economies may be getting bigger their citizens are still likely to be poorer on average
than those in the current G6. China, for example, is expected to have income per capita of about US$31,000 by 2050
while in the United States it will be US$84,000.
Return on capital and the rate at which new technologies are adopted are also key.
The economists admit their projections could be easily scuppered by political upheaval.
"A lot of the difficulty with doing any of this is that you're kind of trying to forecast political cycles," Ms. Purushothaman
said in an interview. "But if the BRICs come anywhere close to meeting the projections set out here, the implications for
the pattern of growth and economic activity could be large," the study said.
jthorpe@nationalpost.com |
