Emerging markets to power global growth

HSBC produced a very good report in which it seeked to identify the Top 100 economies by size. The ranking is based on an economy’s current level of development and the factors that will determine whether it has the potential to catch up with more developed nations. These fundamentals include current income per capita, rule of law, democracy, education levels and demographic change, allowing us to project forward GDP to 2050. They came up with the following findings:

1. The striking rise of the Philippines, which is set to become the world’s sixteenth-largest economy, up 27 places from today.

2. Peru could sustain average growth of 5.5% for four decades and jump 20 places to twenty-sixth. Chile is another star performer in Latin America.

3. Massive demographic change: in 2050 there will be almost as many people in Nigeria as in the United States, and Ethiopia will have twice as many people as projected in the UK or Germany. The population of many African countries will double. Pakistan will have the sixth-largest population in the world. Even if some of these countries remain relatively poor on a per-capita basis, they could see a dramatic increase in the size of their economies thanks to population growth.

4. By contrast, the Japanese working population looks set to contract by 37% and the Russian one by 31%. The eurozone faces similar problems with working population declines of 29% in Germany, 24% in Portugal, 23% in Italy and 11% in Spain, adding a whole new perspective to the sovereign debt crisis.

5. It is not just about population. Ukraine is set to jump 19 places to fortieth because of its education system and rule of law, even though its population is set to fall to 36m from 45m.

6. We divide the Top 100 into three categories: 1) fast growth – with expected average annual growth of more than 5%; 2) growth – with expected annual growth of between 3% and 5%; and 3) stable – those countries expected to expand less than 3% a year.

7. We identify 26 fast-growth countries. They share a very low level of development but have made great progress in improving fundamentals. As they open themselves to the technology available elsewhere, they should enjoy many years of ‘copy and paste’ growth ahead. Besides China, India, the Philippines and Malaysia, this category includes Bangladesh, the central Asian countries of Uzbekistan, Kazakhstan and Turkmenistan, Peru and Ecuador in Latin America, and Egypt and Jordan in the Middle East.

8. The growth category extends to 43 countries. It includes 11 Latin American countries such as Brazil, Argentina, Chile, El Salvador, Costa Rica and the Dominican Republic; Turkey, Romania and the Czech Republic in central and eastern Europe; as well as the war-ravaged Iraq and Yemen.

9. Africa will finally start to emerge from economic obscurity. Five of our fast-growth countries come from Sub-Saharan Africa and three are in the growth category.

10. Most of the economies in our ‘stable’ group are in the developed world. The West is not getting poorer, but high levels of income per capita and weak demographics will limit growth. It is the small-population, ageing economies in Europe that are the big relative losers, seeing the biggest moves down the table.

11. Our Top 30 list changes slightly. Our forecasts for the countries considered in the original document have not changed, but after expanding the pool of countries considered, Peru, the Philippines and Pakistan leapfrog into the Top 30. Pakistan makes it into the top league, less because of individual prosperity, than because of population size.

12.This research strengthens the conclusions of the original report, which found that 19 of the top 30 economies will be countries that are currently ‘emerging’. Our update shows that it is not just the likes of China and India that will be powering global growth over the next four decades. Countries as varied as Nigeria, Peru and the Philippines will also be playing a significant part.

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