The BRICs’ Path to 2050: A Dramatically Different Global Economy

Roopa PurushothamanGoldman Sachs

2

The BRICs Projections

n The motivation: understanding shifts in global spending power

n The goal: a 50-year roadmap of growth and incomes

n The model: two parts to getting richer

n The results: a dramatic change if things go right

n The risks: conditions for converting potential to reality

Dreaming with BRICs

3

n In less than 40 years, the BRICs economies could be larger than the G6 in USD terms.

n China could overtake the US as the world’s largest economy in a little over 30 years. Of the current G6, only the US and Japan may be among the six largest economies in 2050.

n New demand from the BRICs economies could rival the current G6 within a decade and dwarf it by 2050.

n Individuals in the BRICs are still likely to be poorer on average than individuals in the G6 economies, except in Russia.

The BRICs Economies—A Growing Force

4

Economic Gravity Shifts to Asia

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2000 2010 2020 2030 2040 2050

BRICs

G62025: BRICs economies over half as

large as the G6

By 2040: BRICS

overtake the G6

BRICs Have a Larger US$GDP Than the G6 in Less Than 40 Years

GDP (2003 US$bn)

GS BRICs Model Projections.

The Largest Economies in 2050

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

Ch US In Jpn Br Russ UK Ger Fr It

GDP (2003 US$bn)

GS BRICs Model Projections.

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Overtaking the G6: China Moves into Pole Position

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

UK US

France Germany Japan

G6

Italy France Germany

Italy

Germany Japan

Russia

Brazil

India

China

BRICs

Italy

France

*cars indicate when BRICs US$GDP exceeds US$GDP in the G6

GS BRICs Model Projections.

Germany

Dreaming with BRICs

6

A Small But Rapidly Growing Share of the World

Dreaming with BRICs

0

5

10

15

20

25

Brazil Russia India China BRICS

2003 2010 2020

Share of World Economy (USD), %

7

Already Punching Above Their Weight in Global Growth

Dreaming with BRICs

0

5

10

15

20

25

30

35

40

45

50

Brazil Russia India China BRICS

2003 2010 2020

Projected Share of World Growth (USD), %

8

Strong Growth, but a Gradual Decline

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Brazil

China

India

Russia

GS BRICs Model Projections.

real GDP growth (%yoy)

Dreaming with BRICs

9

India's Labor Force Dominates the BRICs and Today's G6 By 2030

0

200

400

600

800

1000

1200

2000 2010 2020 2030 2040 2050

Labor force, millions

Brazil China

India Russia

Germany Japan

US

US Census projections; GS Economics

10

Working Age Share Peaks Later than in Developed World

Dreaming with BRICs

Working Age Population Projected To Decline

50

52

54

56

58

60

62

64

66

68

70

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

% of total population

Brazil

Russia

India

China

G6

working age population = share of population aged 15-60

11

Demand From the BRICs Could Quadruple G6 Demand

$521

$1,594

$4,517

$1,137

$656$470

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2010 2030 2050

BRICs

G6

Annual increase in US$GDP (2003 $USbn)

GS BRICs Model Projections.

Dreaming with BRICs

12

0

500

1,000

1,500

2,000

2,500

3,000

2010 2030 2050

US

China

Brazil, Russia and India

Annual Rise in Spending Power (2003 $USbn)

China is the biggest (but not the only) growth story

Dreaming with BRICs

13

Income Per Capita Rising…

0

10,000

20,000

30,000

40,000

50,000

60,000

2000 2010 2020 2030 2040 2050

India

Brazil

China

Russia

GDP per capita (2003 US$)

GS BRICs Model Projections.

Dreaming with BRICs

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…and Gradually Catching Up with US Levels

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2000 2010 2020 2030 2040 2050

US GDP PerCapita (US$bn)

China GDP PerCapita (US$bn)

17% 21% 26%32%

37%

GS BRICs Model Projections.

Dreaming with BRICs

15

BRICs Currencies Could Appreciate By Close to 300%

289%

281%

208%

129%

0% 50% 100% 150% 200% 250% 300% 350%

China

India

Russia

Brazil

Real exchange rate appreciation (%)GS BRICs Model Projections.

Dreaming with BRICs

16

Conditions Matter: What Models Would Have Said in 1960

0

1

2

3

4

5

6

7

8

Arg Br Fr Ger HK In It Jp Ko UK US

Actual

Predicted

Projected average annual GDP growth, 1960-2000 (%)

GS BRICs Model Projections.

Dreaming with BRICs

17

Ensuring the Conditions For Growth

n Sound, stable macroeconomic policies

n Strong, stable political institutions

n Openness

n High levels of education

n ‘Miracle’ conditions are not needed.

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18

The Largest Economies Will Not Be the Richest

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Ch US In Jp Br Russ UK Ger Fr It0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000US$GDP

US$GDP percapita

2003 US$

GS BRICs Model Projections.

2003 US$bn GDP and GDP per capita in 2050

Dreaming with BRICs

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Implications of the Rise of the BRICs

n A (further) shift in economic power towards Asia.

n The rise and reshaping of regional networks.

n Changing consumption and production patterns.

n A flow of capital back to the BRICs as the world rebalances.

n Appreciation – through exchange rates or through prices?

n The need to reshape international institutions.

Dreaming with BRICs

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The BRICs Market Projections

n The motivation: understanding shifts in global markets

n The goal: a long-term roadmap of growth, incomes and demand patterns

n The model: three steps to a market projection

n The results: a dramatic change if things go right

n The risks: conditions for converting potential to reality; supply dynamics and the competitive landscape

21

Next Decade Is the Peak For Global Growth

2

2.5

3

3.5

4

4.5

5

5.5

1990 2000 2010 2020 2030 2040 2050

Real Growth, %yoy

Global Growth(PPP-weighted)

22

BRICs Could Make Up Close to 30% of the World Economy By 2025

0

5

10

15

20

25

30

Brazil Russia India China BRICs

2005

2015

2025

Projected Share of World Economy (USD), %

23

The Middle Class in the BRICs Could Grow Fourfold in the Next Decade

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Number, billions

Number of People WithIncome Over $3,000 inthe BRICs

GS BRICs Model Projections.

24

A Dramatic Rise in China's and India's Middle Classes

0

200

400

600

800

1,000

1,200

1,400

1,600

2005 2015 2025 2035 2045

Number, millions

China

India

GS BRICs Model Projections.

25

A Large High-Income Pool Could Emerge in the BRICs

0 50 100 150 200 250

Italy 2025 Total Population

France 2025 Total Population

UK 2025 Total Population

Germany 2025 Total Population

Japan 2025 Total Population

New People With Incomes Above$15000 in the BRICs by 2025

Number, millionsSource: US Census; GS BRICs Model Projections.

26

Global Autos Demand Growth Peaks Later

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Growth, % yoy

1.5

2.0

2.5

3.0

3.5

4.0

Growth, % yoy

Global Oil Demand Growth (lhs)

Global Autos Demand Growth (rhs)

GS BRICs Model Projections.

27

Global Demand Growth for Energy and Oil Stays Strong Throughout Next Two Decades

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1990 2000 2010 2020 2030 2040 2050

%yoygrowth

Global Energy DemandGrowth

Global Oil DemandGrowth

GS Forecasts

28

BRICs Share of Global Oil Demand

0

2

4

6

8

10

12

14

16

18

65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 50

% of Global Oil Demand

BrazilChinaIndiaRussia

GS Forecasts

29

Projected Patterns in Global Oil Demand

0.000

0.005

0.010

0.015

0.020

0.025

0.030

0.035

0.040

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Brazil Russia

India China

Oil per Capita, thousands bbl/day

GS BRICs Model Projections.

30

Car Ownership in 2025

0

50

100

150

200

250C

hina US

Bra

zil

Rus

sia

Ind

ia

Japa

n

Ger

man

y

Fran

ce

Ital

y

UK

Kor

ea

Taiw

an

Car Ownership ProjectionsNumber, millions

31

China and India Could See Double-Digit Car Ownership Growth Through the Mid-2020s and Mid-2030s Respectively

0

2

4

6

8

10

12

14

16

18

20

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

%yoy

India China

BRICs Global

GS BRICs Model Projections.

32

Timing For Sweet Spots Varies Across the BRICs

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2000 2010 2020 2030 2040 2050

Brazil

Russia

India

China

Car Ownership Projections Number, thousands

GS BRICs Model Projections.

33

Autos Per Capita Remain Higher in Russia and Brazil Than in China and India

0

100

200

300

400

500

600

700

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

BrazilRussiaIndiaChina

Autos per 1,000 people

34

BRICs Weight in Global Market Cap Set To Rise Significantly, Any Way We Cut It

0

5

10

15

20

25

30

35

40

45

50

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

BRICs Share of Global MarketCap (Constant Ratios)

BRICs Share of Global MarketCap (Market-Based)

BRICs Share of Global MarketCap (Bank-Based)

Share of Global Market Cap (%)

35

BRICs Market Capitalization Could Grow Five-Fold by 2025

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005 2010 2015 2020 2025

US$bn

BRICs

Europe ex-UK

36

The Experience of Korea and the NIEs

China Heading Down Korea's Consumption Path?

0.0

0.0

0.1

0.1

0.1

0.2

0.2

0 5,000 10,000 15,000

Cars Per Capita

China

Korea

Income Per Capita (USD, PPP)

Asia's Oil Shares Rose Sharply

0

1

2

3

4

5

6

7

8

9

10

65 68 71 74 77 80 83 86 89 92 95 98 01

%

NIE

Japan

37

Plausibility Checks

Autos

0

100

200

300

400

500

600

700

800

900

1000

US Japan Korea Germany

Autos per capita

Benchmark Country Brazil

Russia India

China

Oil

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

US Japan Korea Germany

Benchmark Country Brazil

Russia India

China

Oil per capita, Barrels/pd

38

The BRICs Impact on Global Markets: A Transforming Event

n A sequence of pressures: crude, cars then capital

n The growth of a BRICs middle class could be a key market dynamic

n The timing of impact varies across the BRICs

n The next decade is likely to be the peak period for resource pressure

39

Appendix I: BRICs by CountryBraziln Over the next 50 years, Brazil’s GDP growth rate averages 3.6%.n The size of Brazil’s economy overtakes Italy by 2025; France by 2031; UK and

Germany by 2036.

n Challenges: lack of openness, lower education levels, lower savings and investment, higher public and foreign debt.

n Lower convergence rate at first, then catch-up with China.n Critical issues: Foreign and public debt constraints; Infrastructure; Openness to

trade

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China

n China’s GDP growth rate falls to 5% in 2020 from its 8.1% growth rate projected for 2003.

n By the mid-2040s, growth slows to around 3.5%.

n Even so, China becomes the world’s largest economy by 2041.

n High investment rates, tapers off though projection period.

n China’s per capita income could be roughly what the developed economies are now (about US$30,000 per capita).

n Critical issues: Financial System Reform; Political Transition.

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India

n India’s growth rate remains above 5% throughout the period.

n India’s GDP outstrips that of Japan by 2032.

n India could raise its income per capita in 2050 to 35 times current levels.

n Still, India’s income per capita will be significantly lower than any of the countries we look at.

n Critical issues: Openness; Basic Education; Policy Coherence.

Dreaming with BRICs

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Russia

n By 2050, Russia’s GDP per capita is by far the highest of the BRICs.

n Demographic dynamics drive GDP per capita path.

n Russia’s economy overtakes Italy in 2018; France in 2024; UK in 2027 and Germany in 2028.

n Critical issues: Life after Putin; The Transition from Oil.

Dreaming with BRICs

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