The Changing Global Context

BRITAIN AND THE WORLD IN 2030

Jim O'Neill

Tapping into the BRIC and MINT countries is vital for inclusive prosperity. The challenge is to succeed as a trading nation, offering more affluent consumers in the emerging world the sophisticated, higher-value products they will increasingly desire. Brand UK is well placed to prosper.

I have spent more than 30 years in business and economic forecasting. If this time has taught me anything, it is this: no matter how strong your views of the future, you can't let one of them dominate your planning for the possible outcomes. So when it comes to Britain's planning for the world in 2030, it is important to remain adaptable and not to put all your eggs in one basket. While it is right to have a clear view about where our strengths lie, it is dangerous to be too prescriptive. In recent years, various policymakers have declared export targets for particular sectors, often with the notion of doubling them by the end of 2020. While such an aspiration is understandable and admirable, the reality is that the biggest driver of any country's exports is demand in the key markets. And clearly these conditions are not easily influenced.

THE RISE OF THE BRIC AND MINT COUNTRIES

Having made this comment on the uncertainties of the future, I do of course have quite a clear view of what the world might look like in 2030. It is one where China has reached the same size as the US economy (in US$ nominal terms), where India is on the verge of becoming one of the five largest economies in the world and where the remaining BRIC nations of Brazil and Russia—together with the MINT countries of Mexico, Indonesia, Nigeria and Turkey—are all striving to be in the top 10 economies.

After the Great Recession of 2008-2009, many people assumed that these large emerging economies would continue to see their presence in the world economy rise, mainly thanks to the probable slow recovery of the so-called developed world. Today, such optimism in the emerging world is not so widespread. Concerns about their economies' prospects have grown, against a backdrop of increased confidence in the US economy, improving hopes for Japan and tentative hopes that the worst fears for continental Europe will not materialise.

Although it is unlikely that every major economy in the world can grow strongly at the same time, that does not mean that ongoing economic growth in the emerging world will hinder growth within developed countries. In this regard, a key issue for any trade-oriented country is its relative contribution to world growth. It is not commonly known, for example, that world GDP growth in the decade 2001–2010 averaged 3.7%, despite the Great Recession and the earlier bursting of the global IT bubble in 2000–2001, both in the same decade. This growth was higher than in the two previous decades 1981–1990 and 1991–2000, in which it averaged around 3.3%, and was preceded by weaker growth in the 1970s. This was mainly explained by the rise of China (and, to a lesser degree, that of the other BRIC and large emerging economies) and despite the challenges facing many Western economies.

Since 2011, I have assumed that for the current decade, world GDP growth will average an even stronger 4.1%. This is based on the continued rise of the BRIC and MINT economies, and the absence of crises on the scale of 2000–2001 and 2008–2009. Moreover, this assumption is predicated on an expectation that China will grow by less, specifically by around 7.5%. With it, the growth rate of the BRIC countries will be softer than in the last decade, even though their contribution will rise. At the end of 2013, China's economy was around US$9.2 trillion in size, bigger than the combined size of the German, French and Italian economies, and about half the size of the American one. From a global GDP perspective, China growing by 7.5% in 2014 is broadly equivalent to the US growing by 4%. So although China is "slowing," it is contributing more to the world economy.

THE CHANGING CHINESE AND AMERICAN ECONOMIES

For the two decades up to 2030, my best guess is that China will grow by around 6.5%. This should be sufficient to take it towards $30 trillion in current 2013 US$, slightly bigger than the US. Crucially, this growth is likely to be different from the growth China has seen for most of the 1990–2010 period, fuelled less by exports and state investment and more by domestic consumption. For the rest of the world, providing what more affluent Chinese consumers want will become an increasingly important part of international business. So the winners and losers of this "new" China may well be different from the winners and losers of the old China. As I will discuss below, the UK could well be one of the winners, reaping the rewards of a China that is increasingly interested in value-added services and better-quality products rather than commodity-intensive and basic goods.

As China changes, so, too, does the US. We are already seeing signs of the US emerging as a somewhat different economy to that of before the Great Recession. The country will cease to be the world's number one importer, especially of energy but also of other consumer products. Consequently, its companies will join the competitive battle to export to China and other rising emerging nations. In my judgement, the US will be able to grow at a rate in the vicinity of 2.0–2.5% between now and 2030.

On one simple model, what happens to the US and China will be the key driving force for the rest of the world. They will easily remain the dominant economies, accounting for at least a third of the global economy, with no other economy coming close to half their individual sizes. In such a simplified model, it is important to think of the US and China as gradually moving towards different sorts of economies to those familiar to many. The US becoming a bit more like the old China—saving more and consuming less, with a...