China to overtake US by 2025, Vietnam - a competitor

LONDON – Investors need to look beyond the BRICs (Brazil, Russia, India and China) for future growth opportunities, according to a new report, from PricewaterhouseCoopers LLP.

‘The World in 2050: Beyond the BRICs’ concludes that, long-term prospects for China, India and other so-called ‘E7’ economies (Brazil, Mexico, Russia, Indonesia and Turkey) are still upbeat, but the report looks for the first time, at an additional 13 emerging economies, that also have the potential to grow significantly, faster than the established Organisation for Economic Co-operation and Development (OECD) countries.

John Hawksworth, head of macroeconomics at PricewaterhouseCoopers LLP, said: “The global centre of economic gravity, is already shifting to China, India and other large emerging economies, and our analysis suggests that, this process has a lot further to run.

“Our latest projections suggest that China could overtake US around 2025, to become the world’s largest economy, and will continue to grow to around 130% of the size of the US, by 2050. India could grow to almost 90% of the size of US, by 2050. Brazil seems likely to overtake Japan by 2050, to move into the fourth place, while Russia, Mexico and Indonesia all have the potential to have economies larger than those of Germany or UK, by the middle of this century.

“But the fastest mover could be Vietnam, with a potential growth rate of almost 10% per annum, in real dollar terms, that could push it up to around 70% of the size of the UK economy, by 2050.”

The report also highlights that, there are many other alternatives, worth considering, depending on the nature of the investment, and the risk tolerance of the investor.

Nigeria, while high-risk, has the long-term potential, to overtake South Africa to be the largest African economy, by 2050. The Philippines, Egypt and Bangladesh also have high growth potential, but also high risk levels. But with the possible exception of Vietnam, relative to Turkey, the additional analysis does not change, the conclusion from earlier PricewaterhouseCoopers research that the E7 will remain the largest emerging economies, through to 2050.

“The rapid growth of the emerging economies does not mean the demise of the established OECD economies. In fact it should prove to be a boost for them, through growing income from exports and overseas investments, even as the OECD share of world GDP declines. While the macroeconomic story, should be ‘win-win’, at the company level, there are likely to be both winners and losers, from the process of adjusting to this, new world economic order,” John said.

Retailers should be potential winners, by benefiting from lower cost imports, into their OECD markets, while also having the potential to set up new stores in the E7 countries. China, in particular, is likely to be the second largest consumer market in the world by 2020, while cities across the leading emerging markets from Shanghai to Mexico City, will have rapidly growing middle class populations, with the spending power to afford Western consumer goods and services.

“But of course, retailers need to be savvy enough, to identify the right business strategies and local partners for such overseas ventures. This has not always been the case for overseas investments, by retailers in the past, particularly in culturally unfamiliar territories such as China or India,” John said.

Similar cautions apply to other potential winners, such as business services, energy and utilities, healthcare, educational services, media companies and owners of leading global brands. All of these are, in principle, well placed to benefit from the rapid growth in emerging markets, provided, they can identify and execute, the appropriate business strategies, bearing in mind that strong domestic competitors either already exist, or will probably soon emerge in these markets.

Losers are likely to be mass market manufacturers due to increased Chinese competition. New lower cost competitors like Vietnam will also increasingly challenge China, as the leader of low-cost manufacturing in the global economy, while China itself moves into higher technology areas, just as Japan and South Korea, did in earlier decades.

Other potential losers will include companies (including manufacturers) that are heavy users of energy, and other commodities as inputs, given the likely upward pressure on the relative prices of these commodities, from rapid growth in China, and other emerging economies. As highlighted in previous PricewaterhouseCoopers research, in their ‘World in 2050’ series, mitigating upward pressure on energy consumption, and carbon emissions, is one of the most important challenges, posed by rapid growth of the emerging economies.

This new research uses the same methodology, for projecting long-term economic growth rates ,as previous PricewaterhouseCoopers reports in the World in 2050 series, in March 2006 (focusing on the E7 economies and the advanced economies shown in Table A) and September 2006 (focusing on the implications for global energy consumption, carbon emissions and climate change policy). But this new report updates the projections to take account of actual performance in 2006-7, the latest UN demographic projections to 2050, and other relevant new information. It also extends the analysis to 13 other emerging economies, with the potential to be one of the largest 30 economies in the world by 2050. Together this ‘PwC 30’ group of economies accounts for around 85% of world economic output (GDP).

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