By the year 2020, a great shift will have occurred in the worldwide balance of economic power. Analysts predict emerging market economies will become some of the most important economic forces, and China will take the top spot in the list of the world’s largest economies by gross domestic product (GDP), both outright and measured in terms of purchasing power parity.
The Current Top Economies of the World
As of 2015, some of the largest economies in the world include the United States, China, Japan, Germany, the United Kingdom, France, India, Brazil, Italy and Russia. Most of the economies in this top 10 list are developed countries in the western world, while China, India, Russia and Brazil are emerging market economies.
The Top Economies of 2020
The rising importance of emerging market economies in 2020 will have broad implications for the world’s allocation of consumption, investments and environmental resources. Vast consumer markets in the primary emerging market economies will provide domestic and international businesses with many opportunities. Although income per capita will remain the highest in the world's developed economies, the growth rate in per capita income will be much higher in major emerging market nations such as China and India.
According to anticipated GDP in terms of PPP, in 2020 the top economies will be China, the U.S., India, Japan, Russia, Germany, Brazil, the U.K., France and Mexico. One of the major reasons for the growth of emerging economies is that advanced economies are mature markets that are slowing. Since the 1990s, the economies of advanced countries have experienced far slower growth in comparison to the rapid growth of emerging economies such as India and China. The worldwide financial crisis from 2008 to 2009 fueled the trend of decline among the advanced economies.
For example, in 2000 the U.S., the number one economy in the world, accounted for 24% of the world's total GDP. This declined to just over 20% in 2010. The financial crisis and a faster-paced growth by emerging economies were key factors in the decline of the U.S. economy in relation to China. In the mid-2000s, Japan’s economy saw a slight recovery after a lengthy period of inactivity that was due, at least in part, to inefficient investments and to the burst of the asset price bubbles. The global economic downturn has had a significant impact on the country because of prolonged deflation and the country’s heavy dependence on trade.
The economies of countries in the European Union, which include France, Italy and Germany, account for just over 20% of the world’s total GDP. This is a relatively large decrease from the year 2000, when these countries collectively held over 25% of the world’s GDP. The increase in average population age and rising unemployment rates is contributing to this slowdown.
Before the Brexit vote in late June, the International Monetary Fund (IMF) issued a report warning the UK of the economical consequences of leaving the EU. The IMF estimated that the negative effect on GDP following a leave-vote could be anywhere between 1-9.5%. The UK voted to leave and until trade agreements have been made, it will be difficult to accurately estimate an impact on the GDP.
Brexit aside, the IMF predicts advanced economies will experience a growth of less than 3% in 2020. Advanced economies are also facing challenges in terms of public debt reduction and government budget deficits. The IMF also forecasts that growth of Asian economies will be significantly higher, at approximately 9.5%. As of 2015, the growth of these Asian economies is one of the factors driving the worldwide economic recovery.
The Advancing of Emerging Countries
Emerging economies are catching up with the progress of the advanced world and are predicted to overtake many of them by 2020. This will cause a substantial shift in the balance of economic power around the world. China’s share of the world’s total GDP increased more than 6% from 2000 to 2010. Analysts and the IMF anticipate China taking over the lead position as the world’s largest economy, and posit China may overthrow the U.S. as early as 2017. By some calculations, China is already ranked as the largest economy in the world.
As of 2015, India has the 10th largest economy in the world. Many analysts foresee India surging in growth and taking over Japan’s place as the third largest economy in the world by 2020. Some believe India may grow even faster and push the U.S. into third place. Analysts point out India’s young and faster-growing population as key factors in the rate of growth for this country’s economy.
Russian and Brazilian growth potential is great, as both countries are two of the world’s largest exporters of natural resources and energy. However, in the future, the lack of economic diversification in Russia may be likely to cause the country some difficulty with continued growth.
Analysts also expect that by 2020, Mexico will have the 10th largest economy by GDP measured at PPP terms. The country’s proximity to the U.S., growing business and trade deals with the U.S. and a growing population will aid its economic development.
Implications of the Economic Shift
As household incomes rise and populations expand, the service and consumer goods markets will present exponential opportunities in emerging markets. More specifically, luxury goods will have opportunities in these markets as more families reach the middle class.
One of the biggest implications is the importance placed on younger consumers. Though in some emerging countries, including China, the population is aging, the population of emerging markets is overall significantly younger than those of people in advanced economies. Young consumers also represent substantial power over purchases, particularly large items such as cars and homes, as well as the items needed to furnish homes.
Emerging countries are likely to become important foreign investors. The foreign investments they are responsible for making only serve to enhance their influence in the global economy. Investments from foreign countries, including those from advanced nations, will also flow more readily into these developing nations, further driving their economies toward future growth.