Goldman Sachs Global Economics Paper No: 99
gs.com
SUMMARY
* Over the next 50 years, Brazil, Russia, India and China—the BRICs economies—could become a much
larger force in the world economy. Using the latest demographic projections and a model of capital
accumulation and productivity growth, we map out GDP growth, income per capita and currency
movements in the BRICs economies until 2050.
* The results are startling. If things go right, in less than 40 years, the BRICs economies together could be
larger than theG6inUSdollar terms.By2025 they could account for over half the size of the G6. Currently
they are worth less than 15%. Of the current G6, only the US and Japan may be among the six largest
economies in US dollar terms in 2050.
* About two-thirds of the increase in US dollarGDPfrom the BRICs should come from higher real growth,
with the balance through 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).
* The shift in GDP relative to the G6 takes place steadily over the period, but ismost dramatic in the first 30
years. Growth for the BRICs is likely to slow significantly toward the end of the period, with only India
seeing growth rates significantly above 3% by 2050. And individuals in the BRICs are still likely to be
poorer on average than individuals in the G6 economies, with the exception of Russia. China’s per capita
income could be roughly what the developed economies are now (about US$30,000 per capita).
* Asearly as 2009, the annual increase inUSdollar spending from theBRICscould be greater than that from
the G6 and more than twice as much in dollar terms as it is now. By 2025 the annual increase in US dollar
spending from the BRICs could be twice that of the G6, and four times higher by 2050.
* The key assumption underlying our projections is that the BRICs maintain policies and develop
institutions that are supportive of growth. Each of the BRICs faces significant challenges in keeping
development on track. This means that there is a good chance that our projections are not met, either
through bad policy or bad luck. 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 relative importance of the BRICs as an engine of new demand growth and spending power may shift
more dramatically and quickly than expected. Higher growth in these economies could offset the impact of
greying populations and slower growth in the advanced economies.
* Higher growth may lead to higher returns and increased demand for capital. The weight of the BRICs in
investment portfolios could rise sharply. Capital flows might move further in their favour, prompting
major currency realignments.
* Rising incomes may also see these economiesmove through the ‘sweet spot’ of growth for different kinds
of products, as local spending patterns change. This could be an important determinant of demand and
pricing patterns for a range of commodities.
* As today’s advanced economies become a shrinking part of theworld economy, the accompanying shifts
in spending could provide significant opportunities for global companies. Being invested in and involved
in the right markets—particularly the right emerging markets—may become an increasingly important
strategic choice.
* The list of theworld’s ten largest economiesmaylook quite different in 2050. The largest economies in the
world (by GDP) may no longer be the richest (by income per capita), making strategic choices for firms
more complex. |
