The world’s fastest years of economic growth are likely already behind it — expansion is slowing as population growth weakens, according to Goldman Sachs Research. But emerging economies, and powerhouses in Asia in particular, are forecast to keep catching up to richer countries.
Goldman Sachs Research set out its first long-term projections for the Brazil, Russia, India, and China (BRICs) economies almost 20 years ago and expanded those estimates in 2011 to include more countries. Our economists’ latest version covers 104 nations, and the projections cover a horizon from now to 2075.
Worldwide potential growth (the rate an economy can sustain without producing too much inflation) is forecast to average 2.8% annually between 2024 and 2029 and to gradually decline thereafter, according to Goldman Sachs Research. That compares with an average of 3.6% in the decade before the global financial crisis and 3.2% in the 10 years before the Covid pandemic (measured on a market-weighted basis). Economic expansion is ebbing as the world’s rate of population growth has halved during the past 50 years and is now at less than 1% — population growth will stall by 2075, according to UN population projections. Weakening productivity, linked to a slowdown in globalization, is also part of the reason our economists expect GDP growth to fade.
“Global population control is a necessary condition for long-term environmental sustainability,” Goldman Sachs economists Kevin Daly and Tadas Gedminas wrote in a report. But a population that is aging and growing more slowly will have to cope with rising healthcare and retirement costs. The number of countries that face a serious economic challenge from a greying population is likely to steadily increase in the coming decades.
Emerging economies, led by powerhouses in Asia, are growing more quickly than developed ones, even as expansion in real (inflation adjusted) global GDP slows. Their share of the world economy will continue to rise, and their incomes are expected to slowly converge toward those of richer countries. China is forecast to overtake the U.S. as the world’s largest economy by around 2035, while India is expected to have the world’s second largest by 2075, according to Goldman Sachs Research.
China, India, and Indonesia slightly outperformed our economists’ forecasts from 2011, while Russia, Brazil, and Latin America more significantly underperformed those projections. “We expect that the weight of global GDP will shift (even) more towards Asia over the next 30 years,” our economists wrote in their latest report. In 2050, the world's five largest economies (measured in U.S. dollars) are projected to be China, the U.S., India, Indonesia, and Germany. Looking out to 2075, the prospect of rapid population growth in the likes of Nigeria, Pakistan, and Egypt imply that — with the appropriate policies and institutions — these economies could become some of the largest in the world.
The U.S. economy was exceptional during the past decade. It slightly outperformed our economists’ forecasts for real GDP growth, making it unique among large, developed economies. The dollar also appreciated sharply during that period, helping the relative value of the U.S. economy outstrip their expectations. Our economists say that feat is unlikely to be repeated, in part because the greenback has appreciated so much that it’s significantly above its purchasing power parity-based (PPP) fair value. In addition, they argue that “U.S. potential growth remains significantly lower than that of large EM economies, including China and (especially) India.”
Our economists think protectionism and climate change are two of the biggest risks to their projections. Populist nationalists are in power in some countries, and supply-chain disruptions during Covid have resulted in a greater focus on resilience and onshoring, according to Goldman Sachs Research. This has resulted in a slowdown rather than a reversal of globalization, but the risks to globalization, which reduced income inequality across countries, are there. For it to continue, there will need to be more focus on sharing the benefits of globalization and rising incomes within each nation.
When it comes to climate change, many countries have been able to decouple carbon emissions and economic growth, which indicates it should be achievable for the global economy as a whole. But that doesn’t mean it will be easy. “Achieving sustainable growth requires economic sacrifices and a globally coordinated response, both of which will be politically difficult to achieve,” our economists wrote.