The economies of emerging market minnows Egypt and Pakistan could surpass the Canadian economy by 2050, according to a “brave” new report by management consultancy PricewaterhouseCoopers.
“By 2050, emerging economies such as Mexico and Indonesia are likely to be larger than the UK and France, while Pakistan and Egypt could overtake Italy and Canada,” PWC said in a report published Tuesday.
The findings — based on gross domestic product purchasing power parity (PPP) terms — also forecasts India will replace the United States as the world’s second largest economy after China by 2050.
According to the measure, Canada is currently ranked as the 17th largest economy, but by 2030 the country will slip to No. 18 and by 2050 to No. 22. Egypt will move to No. 15 place and Pakistan right behind it.
Despite the Canadian economy’s diminished status, the country’s GDP will roughly double to US$3.1 trillion by 2050 from its current level.
The PWC forecast seems incredulous as Egypt’s GDP based on the more common market exchange rates (MER) stood at US$340 billion and Pakistan a mere US$284 billion in 2016.
By contrast, Canada’s US$1.5 trillion massive economy placed it as the 10th largest in the world.
By PWC’s MER measure, Canada’s GDP will slip to No. 17 by 2050, only narrowly beating both Egypt (No. 18) and Pakistan (19).
PWC argues that the PPP method is more appropriate for long-term forecasts as “price levels are significantly lower in emerging economies so looking at GDP at PPPs narrows the income gap with the advanced economies compared to using market exchange rates.”
The consultancy notes that “it might seem brave to opine on economic prospects for 2017, let alone 2050,” after a year of major political shocks with the Brexit vote and the election of President Donald Trump.
“However, I still think it is important to take a longer term view of global economic prospects that looks beyond the short-term ups and downs of the economic and political cycle, which are indeed very difficult to forecast,” wrote John Hawksworth, chief economist, PwC UK in the report.
Instead, the consultancy focused on fundamental drivers of growth, such as demographics and productivity, which in turn is driven by technological progress and diffused through international trade and investment, Hawksworth said.
Canada is not the only developed economy losing ground to emerging economies on the world stage. Japan would lose its coveted fourth spot to Indonesia by 2050, according to PWC. Germany, United Kingdom and France will also make way for rising economic powers Brazil, Russia, and Mexico to be among the Top 10 largest economies.
PWC warns that while emerging countries may benefit from strong population growth, their progress will depend on being able to generate enough jobs for young people in their countries.
“If they cannot do this, it could be a cause of political instability. For all these countries, therefore, our projections should be seen as indicating the potential for growth, rather than a guarantee that this potential will be realised,” PWC warned.
While some emerging economies will likely stumble and fail to realize their potential, the overall tilt towards emerging economies is unlikely to be interrupted thanks to their surging, young populations, and massive infrastructure requirements and scope for development unlike most saturated and aging developed economies.
China has already overtaken the U.S. to be largest economy based on GDP in PPP terms, and could be the largest valued at market exchange rates before 2030.
The seven most advanced nations — so-called G7, comprising Canada, the U.S., Japan, Germany, the United Kingdom, France and Italy — will see their share of world’s GDP shrink to about 20 per cent in 2050 from 30 per cent currently.
PWC projects the global economy to double by 2050, growing at annual growth rate of 2.6 per cent, largely fuelled by population growth and infrastructure needs of emerging economies.
“We expect this growth to be driven largely by emerging market and developing countries, with the E7 economies of Brazil, China, India, Indonesia, Mexico, Russia and Turkey growing at an annual average rate of almost 3.5% over the next 34 years, compared to just 1.6% for the advanced G7 nations of Canada, France, Germany, Italy, Japan, the UK and the US,” PWC said.