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By M. Isi Eromosele
The world economy has changed a lot over the past 30 years. Over
the next 30, the changes could be at least no less as dramatic.
A major factor in this global economic change would continue
to be that the growth generated by the large emerging countries could become a
much larger force in the world economy than it is now and much larger than many
investors currently expect.
Using the latest demographic projections and a model of
capital accumulation and productivity growth, we have mapped out GDP
growth, income per capita and currency movements in the emerging economies
until 2040.
At Oseme Consulting, we did this not simply by extrapolating
from current growth rates, but by setting out clear assumptions about how the
process of growth and development works and applying a formal framework to
generate long-term forecasts. We look at our emerging nations projections
relative to long-term projections for the G7 (US, Japan ,
UK , Germany ,
France and Italy
and Canada ).
Using the latest demographic projections and a model of
capital accumulation and productivity growth, we map out GDP
growth, income per capita and currency movements in the emerging economies until
2040. This enables us to paint a picture of how the world economy might change
over the decades ahead.
The results are astonishing. They suggest that if things go
right, the major emerging nations, including China ,
Brazil , India
and others would expand their role as a very important source of new global
spending into the near- and far- future.
The projections leave us in no doubt that the progress of
the major emerging economies will be critical to how the world economy evolves.
If these economies can fulfill their potential for growth, they could become a
dominant force in generating spending growth over the next few decades.
About two-thirds of the increase in US dollar GDP from the
emerging economies should come from higher real growth, with the balance
through currency appreciation. The real exchange rates in these countries could
appreciate by up to 300% over the next 30 years (an average of 2 percent a year).
A Dramatically Different World
At Oseme Consulting, we start with some key conclusions that
describe the way the global economy might change over the next 30 years. The
big assumption underlying all of these projections is that the major emerging
nations will maintain growth-supportive policy settings.
Our conclusions fall under five main topics:
Economic Size | Economic Growth | Incomes and Demographics |
Global Demand Patterns | Currency Movements
In each economy, as development occurs, growth tends to slow
and the exchange rate appreciates. Both rising currencies and faster growth
raise US dollar GDP per capita gradually and the gap between the emerging
nations and developed economies slowly narrows.
The impact of demographics varies, with labor force growth
contributing relatively more to growth in India
and Brazil and
detracting from growth in Russia ,
where the US Census projections show the labor force shrinking quite rapidly.
Where labor force and population growth is rapid, income per
capita tends to rise more slowly as higher investment is needed just to keep up
with population growth.
While it may take some time for the level of GDP
in the major emerging countries to approach that of the G6, their share of new
demand growth rises much more rapidly. Because it is incremental demand that generally
drives returns, this measure may be particularly useful to assess the extent of
opportunities in these markets.
We measure that new demand growth as the change in U.S.
dollar spending power in the various economies, so again it incorporates both
growth and currency effects. On these measures, the major emerging economies
will come to dominate the G7 as a source of growth in spending power within 10 years.
M. Isi Eromosele is
the President | Chief Executive Officer | Executive Creative Director of Oseme
Group - Oseme Creative | Oseme Consulting | Oseme Finance
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2012 Oseme Group
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