Jan 12 — By 2020, the combined wealth of the E7 – seven of the world’s fastest growing emerging economies including Brazil, China, India, Indonesia, Mexico, Russia and Turkey — is set to overtake that of the G7 – seven of the world’s largest developed economies including Canada, France, Germany, Italy, Japan, United Kingdom and the United States – according to a recent release by the accounting firm PriceWaterhouseCoopers.
The report measures gross domestic product in purchasing power parity terms, taking into consideration price differences of the same goods across nations. Using the same methodology, the report also found that China will overtake the United States by 2018.
If the calculations are made at market exchange rates (taking into account price differences because of the relative value of currencies), the shift in economic power is slower, and yet, still inevitable. Using this methodology, the E7 would overtake the G7 by 2032, and China would overtake the United States in the same year, PwC said.
Though, growth in China is expected to slow after 2020 due to a reduced labor force growth rate resulting from its one child policy. Rapid inflation also remains a destabilizing concern in the quickly growing economies.
Despite this, China will likely remain an export powerhouse, with exporters potentially moving up the value chain to compete on quality rather than price.
“This renewed dominance 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 to Western Europe and the U.S. – this temporary shift in power is now going into reverse,” the PwC report optimistically concluded.
Interesting additional article on the growth of China’s wealth from the Guardian today: http://www.guardian.co.uk/business/2011/jan/12/era-of-owned-by-china
- Chris
@Chris:
Growth is usually accompanied by inflation. But current situation of inflation in India, Indonesia and other countries is a worrisome development. However, China did not see a high inflation period in the last decade when the country had the maximum growth. I am puzzled by it. Could you post some links or an article about how China was successful in curtailing inflation to 2-3% while maintaining strong growth.
@Chris:
I found this article on the internet and the GDP predictions in this article seem more aligned than that of other parties (banks etc).
Any comments?
http://nextbigfuture.com/2010/08/history-and-future-of-us-and-china-gdp.html
Thanks Deek. The report you provided takes China as a single entity including Hong Kong and Macau, which distorts it rather. Most analysts don’t do that as the demographics between them and mainland China are so different.
Concerning inflation in China, and the published growth rates, I learned long ago to take official statements from China with a large pinch of salt. Inflation is also hard to measure across the country as it impacts on so many different commodities, in addition to practices of deliberate short-supply selling at higher prices.
However as a general rule of thumb what I see on the street is that inflation is patchy, in some cases more than official data, and the GDP growth is currently artificially high due to the government creating a market through cheap loans, credit, low interest rates and manipulating the RMB. I don’t believe that’s sustainable.
In short, I suspect the true position in China to be less impressive than the official data suggests. But that’s just my street wise opinion. Ask 25 economists all qualified in the field and you’ll also get 25 different opinions. That’s the problem with China – it is still far from being a safe, predictable economy. Proceed with caution.
Thanks – Chris
Chris,
While I concede that China’s gone on a spending binge on infrastructure and that some of the resulting buildings and cities may be shoddily built or are empty but the new railways are taking business away from the local airlines and car sales andcity property prices are at a record. If the statistics in China are not 100% reliable what about you and your company’s impressions of how Chinese people (urban and rural) view China, her economy, their own living standards and opportunities today compared to 5 years ago. Wasn’t there a recent Pew study saying there was rising optimism amongst people in both China and India?
Also, there is a blog in Foreign Policy that argues that China may have overtaken the USA for GDP in PPP terms:
http://blog.foreignpolicy.com/posts/2011/01/14/did_chinas_economy_overtake_the_us_in_2010
Some people do have imaginations…