You can’t pick economic winners 40 years in future

The economists, the statisticians and the investment bankers have done their work, and everybody in the financial world now has more or less the same picture of the future in their minds.

The economists, the statisticians and the investment bankers have done their work, and everybody in the financial world now has more or less the same picture of the future in their minds.

The predictions are so consistent that even the general public thinks it knows where the trends are leading us: Asia and Latin America up, Europe and North America in a holding pattern, Africa and the Middle East down.

But maybe the predictions are wrong.

Goldman Sachs started the game almost a decade ago with its study predicting that the BRICs, the four largest emerging economies (Brazil, Russia, India and China), would overtake the rich countries of the G7 (the United States, Japan, Germany, Britain, France, Italy and Canada) some time in the 2030s.

The world’s economic centre of gravity, the study implied, was shifting from the West to Asia.

Hardly anybody disputes this model any more; the pundits just differ on the details, like when China’s economy will pass that of the United States.

As soon as 2020, said PricewaterhouseCooper. In 2027, says the latest Goldman Sachs prediction. In 2035, says the Carnegie Institute. As late as the mid-2040s, according to Karen Ward’s recent study for HSBC.

But they all agree it’s going to happen.

Ward’s study, The World in 2050, is particularly interesting for two reasons. One, because it is more realistic about China, whose economy is currently the biggest bubble in world history. And two, because it offers predictions for the world’s 30 biggest economies, not just the top 10.

China’s economy, at $25 trillion annually, is only a couple of trillion ahead of the United States in 2050. (All calculations are in constant dollars of the year 2000.) Then there is a long drop to India at $8 trillion and Japan at $6 trillion — and no other country reaches $5 trillion.

Places five to 11 are mostly filled by the rest of the G7 countries, with only Brazil and Mexico breaking into the magic circle.

The rest of the top 20, however, are almost all developing countries (Turkey, South Korea, Russia, Indonesia, Argentina, Egypt and Malaysia), with only Spain and Australia from the developed world.

So in this model, Asia and Latin America really are taking over, with 11 out of the top 20 slots.

Now, you can quibble with bits of this, like categorizing Russia as an emerging economy. In terms of infrastructure, average education level and birth rate, Russia is clearly a developed country.

But if these predictions are roughly correct, then it is definitely Asia and Latin America up, and Europe and North America (plus Japan) in a holding pattern.

And are Africa and the Middle East really down? Up and down are purely relative, of course, and there are certainly some large African countries with quite respectable projected growth rates, like Nigeria and South Africa. But despite the world’s highest population growth rates, no African country’s economy makes it into the top 20 by 2050.

Of the Middle Eastern countries, only Egypt scrapes in at No. 19, just ahead of Malaysia (which has only a third of Egypt’s population). Most of the non-oil economies face virtual stagnation, and there are big question marks over the claimed oil reserves of a number of the oil states.

Africa and the Middle East down.

It’s only a game: only the very brave or the very foolish would base major investment decisions on such a long-term extrapolation of current trends. But it’s the sort of thing that the strategists and the geopolitics experts love — and it could be wrong. Not just wrong in detail, but utterly, spectacularly wrong.

All of these predictions assume that global conditions will remain essentially unchanged for the next 40 years. That is highly unlikely.

The predictions are not simple-minded straight-line extrapolations. They all assume, for example, that China’s economy, which has grown at 10 per cent for the past 20 years (and therefore doubled in size every seven years), will drop to about half that growth rate (doubling only every 14 years) well before 2050.

But they do assume that energy — especially oil — will remain plentiful and relatively affordable for the next 40 years.

Even more implausibly, they also assume that global warming will not cause serious disruptions in the world’s economies over the next two generations.

Yet there is already enough warming locked into the system by past, present and near-future emissions that severe disruption is virtually guaranteed, especially in the tropical and sub-tropical parts of the planet.

The old-rich countries of the G7 are all in the temperate zone, which may get away with relatively minor damage from global warming in the period to 2050.

All the big “emerging” economies except Russia and Argentina are located wholly or largely in the tropics and/or the sub-tropics. That means they will almost certainly suffer very serious disruption, including huge losses in food production.

This is monstrously unfair. Just when the poorer countries finally start to catch up economically with their former imperial masters, the warming caused by two centuries of greenhouse gas emissions by the rich countries knocks them back yet again.

Which may also knock all those predictions that the emerging economies will soon overtake the developed ones into a cocked hat.

Gwynne Dyer is a freelance Canadian journalist living in London. His new book, Crawling from the Wreckage, was published recently in Canada by Random House.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

House sales remain hot in central Alberta with first-quarter sales nearly double last year’s numbers. Photo by PAUL COWLEY/Advocate staff
Central Alberta real estate market hot in 2021

Residential sales nearly double 2020 in first quarter

Red Deer Mayor Tara Veer gave an update on Olymel's COVID-19 situation on Wednesday. (File photo by Advocate staff).
Veer addresses rising COVID-19 cases in Red Deer

Red Deer has added nearly 200 cases of active COVID-19 cases in past week

Alberta’s chief medical officer of health Dr. Deena Hinshaw and Premier Jason Kenney say the province would look at adding additional COVID-19 measures in the coming weeks if the virus continues to spread. (Photo by Government of Alberta)
Walk-in COVID-19 vaccination clinic to open in Red Deer

Alberta adds 1,345 new cases of the virus

Innisfail RCMP are investigating a single-vehicle crash that happened west of Bowden on March 21, 2021. (File photo by Advocate staff)
RCMP investigate culturally insensitive graffiti at Sylvan Lake school

Sylvan Lake RCMP is investigating a vandalism incident. On April 17 around… Continue reading

A vial of the Medicago vaccine sits on a surface. CARe Clinic, located in Red Deer, has been selected to participate in the third phase of vaccine study. (Photo courtesy www.medicago.com)
Red Deer clinical research centre participating in plant-based COVID-19 vaccine trial

A Red Deer research centre has been selected to participate in the… Continue reading

Vancouver Canucks' Tanner Pearson, right, celebrates after scoring against Toronto Maple Leafs goalie David Rittich during the third period of an NHL hockey game in Vancouver, on Tuesday, April 20, 2021. THE CANADIAN PRESS/Darryl Dyck
Pearson, Sutter each score twice as Canucks dump Leafs 6-3

Pearson, Sutter each score twice as Canucks dump Leafs 6-3

Everton's Gylfi Sigurdsson celebrates with teammates after scoring his side's second goal during the English Premier League soccer match between Everton and Tottenham Hotspur at Goodison Park in Liverpool, England, Friday, April 16, 2021. (Peter Powell/Pool via AP)
Super League collapses after the 6 English clubs withdraw

Super League collapses after the 6 English clubs withdraw

Boston Red Sox starting pitcher Eduardo Rodriguez delivers against the Toronto Blue Jays during the first inning of a baseball game Tuesday, April 20, 2021, at Fenway Park in Boston. (AP Photo/Winslow Townson)
Bogaerts’ 3-run HR, Rodriguez lift BoSox over Blue Jays 4-2

Bogaerts’ 3-run HR, Rodriguez lift BoSox over Blue Jays 4-2

Pound says Olympic qualifying issues a concern to IOC

Pound says Olympic qualifying issues a concern to IOC

Former University of Victoria rowing coach Barney Williams is photographed in the stands during the Greater Victoria Invitational at CARSA Performance Gym at the University of Victoria in Victoria, B.C., on Friday, November 29, 2019. THE CANADIAN PRESS/Chad Hipolito
Rowing Canada sanctions former head coach of B.C. varsity women’s team

Rowing Canada sanctions former head coach of B.C. varsity women’s team

Ontario Hockey League cancels 2020-21 season as COVID-19 cases surge in province

Ontario Hockey League cancels 2020-21 season as COVID-19 cases surge in province

Lionel Desmond (front row, far right) was part of the 2nd battalion, of the Royal Canadian Regiment, based at CFB Gagetown and shown in this 2007 handout photo taken in Panjwai district in between patrol base Wilson and Masum Ghar in Afghanistan. THE CANADIAN PRESS/HO-Facebook-Trev Bungay MANDATORY CREDIT
Desmond inquiry: Veterans Affairs submits internal review after initial refusal

Desmond inquiry: Veterans Affairs submits internal review after initial refusal

FILE - In this Feb. 18, 2021 file photo State representatives gather at the Capitol, in Phoenix. Two years after Arizona lawmakers repealed a law barring any instruction on HIV or AIDS that that "promotes a homosexual lifestyle," they are close to enacting a broad remake of the state's sex education laws with a particular focus on LGBTQ issues. (AP Photo/Matt York,File)
Arizona governor vetoes strict sex education legislation

Arizona governor vetoes strict sex education legislation

Most Read