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Report predicts world growth to 2020

April 1 2006 - A new research report from the Economist Intelligence Unit predicts that more than half the growth in the world's GDP over the next 15 years will come from China (27%), the US (16%) and India (12%).

The Foresight 2020 research report, sponsored by Cisco Systems, bases its predictions on new long-term economic forecasts, a survey of more than 1,650 executives and in-depth interviews with senior business leaders. Other predictions in the study include:

• The US will average close to 3% growth a year between now and 2020
• In comparison, the 25 European Union countries will average 2.1%
• Japan's growth will average less than 1% a year as its population shrinks
• The EU will compensate for the slower growth rate by territorial expansion, increasing to a union of more than 30 countries
• Average income of the enlarged EU will be just 56% of the US average in 2020
• China will close the gap in economic size with the US by 2020
• In terms of purchasing power parity (PPP) Asia will increase its share of world GDP, from its current 35% to 43% in 2020.

Laza Kekic, director of forecasting services at the Economist Intelligence Unit, considers talk of the 'Asian century' to be premature:

"On a per-capita basis, China and India will remain far poorer than Western markets and the region faces a host of downside risks," he says says, "Asia will narrow the gap in wealth, power and influence, but will not close it."

Real GDP growth in selected countries - 2006-20
(annual average %)

World EU25 EU15 Asia Latin America Middle East & North Africa Sub-Saharan Africa United States France Germany Italy United Kingdom Russia Japan China India Brazil

3.5 2.1 2.0 4.9 3.2 4.0 2.8 2.9 1.9 1.9 1.0 2.3 3.3 0.7 6.0 5.9 3.2

The report assumes that world economic growth depends on the pace of globalization. If global trade continues to be gradually liberalized, the global economy will be two-thirds larger in 2020 than in 2005. But if globalization reverses or unravels, annual rates of global economic growth would be two percentage points lower. On the other hand, faster liberalization could boost annual global growth by a further percentage point.

Labour-intensive production will continue to shift to lower-cost countries but the report concludes that fears of the death of Western manufacturing are premature. Workers in the low-cost economies will benefit but Chinese average wages, for example, will rise only to about 15% of the developed-country average in 2020 compared with today's 5%.

To download Foresight 2020 free of charge, visit www.eiu.com/foresight2020

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