China Will Be World's Largest Economy by 2018

China is projected to surpass the US as the world’s largest economy as early as 2018, on purchasing power parities (PPPs), according to the latest PwC ‘The World in 2050’ series.


Measuring GDP at PPPs - which factors price differences across countries at different levels of development - the analysis finds that the E7 emerging economies (China, India, Brazil, Russia, Mexico, Indonesia and Turkey) are likely to surpass the G7 economies (US, Japan, Germany, UK, France, Italy and Canada) before 2020. The key drivers of the E7’s growth are China and India.China’s economy is, however, expected to slow down progressively after 2020 due to its significantly lower labour force growth arising from its one child policy. Despite this, China will remain an export powerhouse, with Chinese exporters moving steadily up-market, competing increasingly on quality rather than price. The Chinese domestic market will also become increasingly important for both Chinese and foreign companies as real wages increase.


India’s growth is expected to overtake China’s at some point during the coming decade due to its significantly younger and faster growing working age population. India also has more potential for growth as it is starting from a lower level of economic development and so has more catch-up potential.


“In many ways, the renewed dominance by 2050 of China and India, with their much larger populations, is a return to the historical norm prior to the Industrial Revolution of the late 18th and 19th centuries that caused a shift in global economic power from Asia to Western Europe and the US. This temporary shift in power is now going into reverse,” says John Hawksworth, PwC’s chief economist.


If based on GDP at market exchange rates (MERs), then the shift in the economic world order is slower, but equally inevitable, with the E7 projected to overtake the G7 around 2032. China would also overtake the US in that same year to become the biggest economy in the world based on GDP at MERs.


The most significant increase in its share of world GDP is actually projected for India rather than China. In 2009, India’s share of world GDP measured at MERs was just 2%. By 2050, this share could grow to around 13%.


The analysis also finds that Australia and Argentina may be relegated from the ranks of the largest G20 economies by 2050, while Vietnam and Nigeria have the potential to join this list. Indonesia could rise from the sixteenth biggest economy in PPP terms in 2009 to the eighth biggest by 2050, overtaking not just Italy, but also France, the UK and Germany over the next 40 years.










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