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HSBC expert: Expect the emerging world to overtake developed economies

The global economy is undergoing a seismic shift which will lead to the emerging markets collectively becoming larger than today's developed economies during the next 35 years.

That is one of the conclusions of a report by HSBC Global Research, entitled ‘The world in 2050: Quantifying the shift in the global economy'.

The report's author Karen Ward, senior global economist with HSBC, was in Bermuda this week to give a presentation to clients and staff at HSBC Bermuda.

In an interview with The Royal Gazette, Ms Ward said: “Our research finds that 19 of the world's top 30 economies in 2050 are emerging markets today. I'm not saying developed markets will go backwards, but emerging economies will grow faster.”

China will be the world's biggest economy in 2050, the report predicts, having pushed the United States into second place. India, where Ms Ward expects income per capita to grow at least eightfold between now and then, will be third.

Japan, Germany, Britain, Brazil, Mexico, France and Canada make up the remainder of the top 10.

Ms Ward expects global output to treble between today and 2050, driven by emerging markets, which she expects to contribute twice as much to growth over the period as developed economies.

Demographics will be a factor and will have a very different impact on countries like Saudi Arabia, whose working population is expected to increase by 73 percent by 2050, from Japan, where the ageing population will cause the workforce to decline by 37 percent over the same time period.

The research bases its projections on the work of Harvard Professor Robert Barro, who found that the three key determinants of economic growth are economic governance (monetary stability, the rule of law, political rights and size of government), human capital (education, health and fertility rate) and the starting level of income per capita.

Countries that were strong in these areas effectively had a strong framework for growth, the report found. Aside from China and India, others expected to surge up the global economic league table include Mexico, Turkey, the Philippines and Peru.

One of the starting points for Ms Ward's research and an important indicator of likely future growth was at what stage of development an economy was, Ms Ward said.

She used the example of China, which is the subject of some current investor concern amid slowing growth rates, causing some to compare the Communist country with Japan in the 1980s, just before its economic growth stalled.

“You should not compare China now to Japan in the 1980s — it's more like Japan in the 1950s or the US in 1900,” Ms Ward said. “It's got a good 30 years of what I would call ‘copy and paste' growth ahead of it.

“People often compare China and Brazil, but Brazil is at a much later stage of economic development than China, so China's potential growth rate is much higher than Brazil.”

While many would argue that Beijing or Shanghai resembled cities in the developed world, Ms Ward said an enormous amount of infrastructure still needed to be built out for China's 1.3 billion people — especially outside the major cities.

Asked about the “ghost cities” without inhabitants but rife with property speculation, and the concerns over the Chinese credit market, Ms Ward said she expected China's economic development to catch up with some current overcapacity.

“I think China is ahead of its own curve,” she said. “It wants to be the world's biggest economy and it's providing infrastructure like the ghost cities ahead of events happening. Yes, there has been an increase in debt, but show me one part of the world where there has not been.”

The projected increase in productive scale in the years to come meant China would be in a strong position to deal with debt, she added.

Between now and 2050, around 2.6 billion people are expected to move up into the middle class in the emerging markets. As they purchased transportation, homes, furnishings and insurance, these people would drive growth, Ms Ward said.

Richard Moseley, CEO of HSBC Bermuda, said the report had practical significance for investors and businesses in Bermuda.

“The success of Bermuda has traditionally been driven by its position between Europe and the US, Mr Moseley said. “The challenge for the Bermuda industries is to understand the changes in the global economy and how to benefit from them.”

He added that HSBC's global network had operations in the strongest-growing parts of the world, allowing clients local expertise as well as global exposure.

Long-term outlook: HSBC senior global economist Karen Ward

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Published May 08, 2014 at 12:39 pm (Updated May 08, 2014 at 12:39 pm)

HSBC expert: Expect the emerging world to overtake developed economies

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