In this time, in the world top, 5 largest economies are China, the United States, India, Japan, and Germany. Will they maintain their places till 2030? Or will we see a reshuffling?
China has already exceeded the United States in terms of Obtaining Power Parity Gross Domestic Product; it’s a method of estimating the relative purchasing power of a nation used throughout this piece. This is only one measure of wealth, and much of China remains poor, but it explains that measurement values. By other measures, such as current-dollar GDP, the United States is still the biggest economy, and it is likely that U.S. economic dominance will remain.
Picture Courtesy: www.bloomberg.com
The United States has a few benefits in remaining a top economic power. Unlike China, the United States has already turned from manufacturing toward services, thereby decreasing its reliance on exports for growth. And the head to hydraulically fracture lessens the United States’ reliance on global energy businesses and Middle Eastern stability, something that was not true a decade ago.
For its part, China will surely remain a top 5 economy, but it will not overtake the United States in terms of GDP per capita, a standard of wealth versus size. The 2 primary headwinds for China maintaining are the essential to reform its banking system, and the pivot to a more consumer-driven society. Neither is easy to address on its own, never mind in tandem.
Picture Courtesy: www.weforum.org
China’s banking system is laden with non-performing loans. The extent of the issue is unknowable, due to the darkness of the institutions, but the suspicion is that the necessary to recapitalize and expunge the balance sheets is immediate and stark. Tackling, and ultimately solving, the problem will consume resources that would be better used to transition the economy from infrastructure building and financing to services.
By 2030, China may see itself in a similar position to where Japan is today, an important global economic player going nowhere fast while aging rapidly. Unlike Japan, China will be a particularly poor position to delay its growth, given that it will be at best a middle-income country.
Picture Courtesy: newworldthinkengine.blogspot.com
This so-called ‘middle-income trap’ is relentless, but the middle-income net is not a middle-income decline. It is unusual for nations to fall back significantly, which is what it would need for China, or the United States, to fall out of the top 5. Therefore, the battle for spots in the top 5 will be fought from 3rd to 5th place, positions currently held by India, Japan, and Germany. The captivating puzzle is who will fall out, and who will rise to succeed them.
Managing the International Monetary Fund’s PPP GDP figures, the US and China have conomies that are more than double that of 3rd place India. Nonetheless, it will take a serious turn of fate for India to be succeeded in the top five. India’s tailwinds are many, its headwinds are manageable and, unlike most the rest of the world, India is a comparatively young country. It also has the tailwind of demanding to build the necessary infrastructure to be a twenty-first-century economy. And, at less than 70 % according to the IMF, India does not have the government-debt-to-GDP load that hinders the growth of many countries.