China to overtake US by 2018 - PwC

13 Jan 2011 | 08:41
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China will overtake the US as the world's largest economy by 2018 as the global financial crisis propels the shift in economic power to emerging countries, says PricewaterhouseCoopers.

The firm's analysis found the E7 emerging economies, comprising China, India, Brazil, Russia, Mexico, Indonesia and Turkey are likely to surpass the G7 economies before 2020.

PwC chief economist John Hawksworth says: "In many ways, the renewed dominance by 2050 of China and India, with their much larger populations, is a return to the historical norm prior to the Industrial Revolution of the late 18th and 19th centuries that caused a shift in global economic power from Asia to Western Europe and the US.

"This temporary shift in power is now going into reverse."

One of the key drivers fuelling emerging market growth is expansion in China and India. However, China's economy is expected to slow down progressively after 2020, due to demographic constraints, with a substantially lower labour force restricted by its one child policy.

Nonetheless, PwC says China will remain an export powerhouse, while the domestic market will become increasingly important for both Chinese and foreign companies as real wages increase.

But India is set to supersede even China's growth at some point during the next decade, based on the country's younger and faster growing working age population.

India also has more potential for growth as it is starting from a lower level of economic development and offers the opportunity for greater catch up PwC says.

However, if based on GDP at market exchange rates, the shift in the economic world order is slower - although equally inevitable - with the E7 projected to overtake the G7 around 2032.

PwC said China would overtake the US that same year, to occupy the top spot as the largest economy in the world, based on GDP and market exchange rates (MERs).

Alongside China and India, the contenders set to overtake the G7 nations include Russia, which is expected to overtake Germany in 2014 based on GDP at purchasing power parities (PPPs), or 2042 at MERs.

Brazil is set to surpass the UK by 2013 based on GDP at PPPs or 2023 at MERs.

The newer emerging market Indonesia is expected to overtake Italy by 2030 and 2039 respectively.

PwC highlighted the most significant increase in its share of world GDP is projected for India rather than China. In 2009, the country's share of world GDP measured at MERs was only 2% and by 2050, this could grow to around 13%.

Conversely, Australia and Argentina could be ousted from the ranks of the largest G20 economies by 2050. Meanwhile, frontier markets Vietnam and Nigeria could potentially join the G20 list.

PwC added Indonesia could climb from the 16th largest economy in PPP terms in 2009, to the 8th by 2050, outpacing Italy, France, the UK and Germany over the next 40 years.


Categories: Emerging Markets

Topics: Emerging marketsChinaPricewaterhouse coopers

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