In a recent blog on the changing world economy I included a chart on the IMF’s forecasts up to 2018, which showed that the US economy in nominal (market exchange rate) terms was set to overtake the EU28’s by 2018, whilst China’s economy was catching up fast.1 A recent report by the Centre for Economics and Business Research (CEBR) pushed the forecasting limit out to 2028, with some speculations up to 2030. Granted such long-term forecasts are inevitably pitted with forecasting errors and should be interpreted with great caution, but they help to “inform the debate” as to how the global economy is developing and how any British government should be respond.
The CEBR concluded that China should overtake the US in 2028 and the UK could overtake Germany by “around 2030”. The latter may be regarded as especially surprising, given that Germany’s economy was as third as big again in 2012. But Germany’s demographics are dire, whilst the UK’s are not.3 And this discrepancy does much to explain the CEBR’s forecasts.
It is, perhaps, little appreciated that Germany’s population has already begun to contract and there is absolutely no doubt that it is ageing. Germany’s population peaked at around 83.85 million in 2004, but by 2010 it was down to just over 83 million, having lost over 800,000 citizens. Germany’s demographics are among the most adverse of any major country, alongside Japan, Korea and several of the Eastern European countries (of which Russia and Poland are the most significant).
And even though Germany’s population is projected by the UN to be around 80 million in 2030 compared with the UK’s 69 million, its age-structure is expected to be significantly older, crucially affecting its economic potential.4 Incidentally, looking further out, the situation looks even worse for Germany. The UN suggests that Germany’s population will have fallen to about 72½ million by 2050. In contrast French and British populations are expected to continue rising - by 2050 these two countries could have populations of around 73 million each. In this scenario Western Europe’s “big 3” could have very similar sized populations by 2050. Stretching out until the end of the century, the UN expects that the French and British populations (79 million and 77 million respectively) would comfortably exceed Germany’s. Germany’s population is projected to be 57 million in 2100, nearly 20% lower than in 1950!
Other highlights from the CEBR report included:
· India’s GDP overtakes a demographically-challenged Japan by 2028, to be the 3rd biggest economy.
· Brazil overtakes both the UK and Germany by 2023, to be the 5th largest economy.
· Eurozone countries generally slip down the league table. Germany from 4th (2013) to 6th (2028); France from 5th (2013) to 13th (2028); Italy from 9th (2013) to 15th (2028); Spain from 13th (2013) to 18th (2028) and the Netherlands from 18th (2013) to 30th (2028). CEBR assumes that the Eurozone holds together but suggests that, if the Euro broke up, the outlook for Germany would be better, though correspondingly worse for the other European economies.
· The rankings of Russia, Canada and Australia are little changed over the forecasting period. Russia, 8th in 2013, will be 8th in 2028; Canada, 10th in 2013, will be 10th in 2028, whilst Australia slips a tad from 12th (2013) to 14th (2028).
· By 2028 the world league table has been partly re-ordered. Not only does China move to number 1 and India to number 3, but Mexico moves to 9th place, Korea to 11th and Turkey to 12th (all higher than France). “As symbols of the new world order” Nigeria, Egypt, Iraq and the Philippines have all broken into the “top 30”, whilst Norway, Belgium and Austria have dropped out.
Ranking for the top 14 economies (as in 2013) for the years 2013, 2018, 2023 and 2028
1. Ruth Lea, “EU28 no longer world’s largest economy”, Global Vision, 14 November 2013.
2. CEBR, “Cebr’s World Economic League Table”, 26 December 2013.
3. Ruth Lea, “Ageing populations in advanced countries: economic implications and challenges”, Arbuthnot Banking Group, 21 October 2013.
4. UN, “World Population Prospects: The 2012 Revision”, Medium variant, June 2013.