08.02.2017

India's economy will overtake US by 2040

400The 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 US to become the world's second largest economy in purchasing power parity (PPP) terms, consulting firm PwC said in a new report titled “The World in 2050.” 

The report, called "The long view: how will the global economic order change by 2050?," ranked 32 countries, based on their projected Gross Domestic Product by Purchasing Power Parity (PPP).

Drastic improvement in terms of per-person productivity due to capital investments and better technology will play an even more important role. PwC predicts that India’s economy will grow by about 4.9% per year from 2016 to 2050, with only 0.7% of that growth caused by population growth. 

Among the 32 largest economies in the world in 2016, only Vietnam is expected to grow faster per capita than India over the next three decades, PwC projects. With this growth, India’s economy would go from accounting for 7% of world GDP to 15%.

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 UK and the US.

“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 added.

"Emerging economies offer great opportunities for business — the numbers in our report make it clear that failure to engage with these markets means missing out on the bulk of economic growth we expect to see in the world economy between now and 2050," said John Hawksworth, the chief economist at PwC. "To succeed, businesses will need to adopt strategies with the right mix of flexibility and patience to ride out the short-term economic and political volatility that is a normal feature of emerging markets as they mature."

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.

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“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,” the report said.

PWC projects the global economy to double by 2050, growing at annual growth rate of 2.6%, largely fuelled by population growth and infrastructure needs of emerging economies.

Purchasing Power Parity (PPP) is an economic theory that compares different countries' currencies through a market "basket of goods" approach. PPP determines the economic productivity and standards of living of various countries over a period. Since market exchange rates fluctuate substantially, many economists consider PPP as a more precise way of estimating a country’s economy.


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