Expected Trends in global economy
1. The global economic order is expected to shift from advanced to emerging economies over the next few decades, and by 2040 India could edge past the U.S. to become the world’s second largest economy in purchasing power parity (PPP) terms after China.
“In fact, China has already overtaken the U.S. to become the world’s largest economy in PPP terms, while India currently stands in third place and is projected to overtake the U.S. by 2040 in PPP terms,” PwC said.
2. According to PwC, E7 economies comprising Brazil, China, India, Indonesia, Mexico, Russia and Turkey would grow 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 U.K. and the U.S.
PwC opines Vietnam, India and Bangladesh would be three of the world’s fastest growing economies over this period.
3. The E7 could comprise almost 50% of world GDP by 2050, while the G7’s share declines to only just over 20%.
PricewaterhouseCoopers (doing business as PwC) is a multinational professional services network headquartered in London, United Kingdom. It is the second largest professional services firm in the world and is one of the Big Four auditors, along with Deloitte, EY and KPMG.
What is PPP?
There are two ways to measure GDP (total income of a country) of different countries and compare them. One way, called GDP at exchange rate, is when the currencies of all countries are converted into USD (United States Dollar). The second way is GDP (PPP) or GDP at Purchasing Power Parity (PPP).
Purchasing Power Parity (PPP) is measured by finding the values (in USD) of a basket of consumer goods that are present in each country (such as orange juice, pencils, etc.). If that basket costs $100 in the US and $200 in England, then the purchasing power parity exchange rate is 1:2.
What sets GDP (PPP) apart from other economic indicators, such as GDP per capita, nominal GDP, and real GDP, is that GDP (PPP) takes the costs of living into account. This explains why GDP (PPP) is used to measure the quality of life in a country. However, when measuring a country’s economic power (i.e. what it can buy on the world market), use GDP at exchange rate.
For example, suppose that Japan has a higher GDP per capita ($18) than the US ($16). That means that Japanese on average make $2 more than normal Americans. However, they are not necessarily richer. Suppose that one gallon of orange juice costs $6 in Japan and only $2 in the US; then $6 in Japan exchanges to only $2 worth of US goods, since the Japanese can only buy 3 gallons while the Americans can buy 8 gallons. Therefore, in terms of orange juice, the Americans are richer, and in this example the US has a GDP (PPP) of $16, since the $16 can buy 8 gallons of orange juice (by definition), while Japan has GDP (PPP) of only $6, since the $18 in Japan can only buy 3 gallons of orange juice, which represents only $6 of US goods.