Thread: The World in 2050: Quantifying the Shift in the Global Economy

Is 2050 our next big target?
Saturday January 15, 2011

HSBC report projects Malaysia as a top-30 economy 40 years from now, but there are ifs and buts.

FORGET the Mayan prophecy that doomsday will occur on Dec 21 next year. Which would you rather pin your hopes on an ancient calendar of a collapsed civilisation or a recent 46-page economic report by an international bank? HSBC Bank plc issued the report, The World in 2050: Quantifying the Shift in the Global Economy, on Jan 4, and it's relevant to us here because Karen Ward, the bank's senior global economist and lead author of the report, seems pretty optimistic that Malaysia will fare well over the next four decades.

(By the way, the global head of economics at HSBC goes by the name of Stephen King. There may one day be a report from the bank that links the end of the world with spooky economic trends.)

According to the HSBC analysis, come 2050, Malaysia will be No. 20 among the world's top 30 economies, as ranked by the size of gross domestic product (GDP). That will mean climbing 17 rungs between now and 2050, the biggest jump recorded by any of these 30 countries. Thailand, the Netherlands, Switzerland, Hong Kong and South Africa are among those below Malaysia in the league table. Singapore will not even be in HSBC's top 30.

The main theme of the report is that the global economy is being transformed by the rapid growth of the emerging markets. Ward wrote: “By 2050, the collective size of the economies we currently deem emerging' will have increased five-fold and will be larger than the developed world. And 19 of the 30 largest economies will be from the emerging world. At the same time, there will be a marked decline in the economic might and potentially the political clout of many small population, ageing, rich economies in Europe.”

For example, HSBC reckons that China will be the largest economy in 2050 and India will occupy third place. Other than Malaysia, the emerging economies that will make significant headway in the world standings include Mexico, Turkey, Indonesia, Egypt, Thailand, Colombia and Venezuela.
Those who will lose a lot of ground are the ageing, rich European economies with small populations. Switzerland and the Netherlands will tumble down the table in 2050, while Sweden, Belgium, Austria, Norway and Denmark are not even in the bank's top-30 list.

It's nice to know that the HSBC report indicates a promising future for Malaysia, but it's essential that we have an idea of how the bank came up with the projections for total GDP. Basically, it begins by modelling income per capita and then incorporating the demographic outlook.

The first part is largely derived from the work of Robert Barro, an economics professor at Harvard University. To work out estimates of per capita income, the HSBC economics research team looked at key determinants of economic development in three areas economic governance (the degree of monetary stability, political rights and the level of democracy, the rule of law, the size of government), human capital (the level of education, health of the population and fertility rate) and the starting level of income per capita.

The idea is to establish how the economic conditions will affect how much an individual will be able to produce. HSBC has calculated that Malaysia's income per capita will grow by well over 500% between 2010 and 2050.

The next step is figure out the number of people being put to work across economies in the coming years. This is where demographics come into the picture.

“Differences in the demographics alone could explain as much as 2.5% points in GDP growth differentials in the coming decades,” says the report. A principal factor is the expected growth of each country's working population. HSBC relied on numbers from the United Nations. Malaysia is one of the countries that will see a strong expansion in their workforce, an increase of more than 40% from now until 2050.

The bank's research team combined the two sets of projections to get the total GDP growth rates over the next 40 years, and these in turn provide the size of the economies in 2050.

Of course, HSBC couldn't just lay out the figures and claim that all will be hunky-dory. The report has to address the worry that the planet may not have the capacity to sustain the fantastic growth in economic output by 2050.

Says the report: “The answer is a cautious yes. The world economy can triple its income, but only if levels of resource productivity are improved many times over.” That means there has to be major investment in efficiency and low-carbon alternatives. HSBC concedes that meeting food demand may be more challenging, but points out that improvements in yield and diet could fill the gap.

So, Malaysia still has a decent chance of making it to the top 30 by 2050, right?

We should take note that despite the amount of number-crunching and rationalising, the HSBC report is produced so as “to provide a framework for thinking” about issues related to the seismic shift in the global economy caused by the rapid growth of the emerging markets. We can remain hopeful, but let's not lose sight of the fact that an exercise like this comes with its fair share of ifs and buts. After all, HSBC is not in the business of making prophecies.

Says the report: “In a nutshell, our projections are based on a rather rosy backdrop everything is going right, governments and policymakers are doing the right thing.” In other words, things can go horribly wrong if the policymakers fail to make good decisions. We probably can learn that from the Mayans as well, can't we?

Deputy executive editor Errol Oh is fascinated with the many examples of the decline of great civilisations. Some of these have never been fully explained, but he believes the stock market is somehow at the centre of each case.

biz.thestar.com.my

http://www.research.hsbc.com/midas/R...j&n=282364.PDF

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As no major bank forecast the current economic crisis by so much as a day before it started, I think they can keep their 'forecasts' for the year 2050.