Top 10 largest economies in 2020
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By 2020 there will be a major shift in the global balance of economic power compared to 2010. Euromonitor International assesses the shift and its implications.
Emerging economies will rise in importance and China will have overtaken the USA to lead the list of the world's top ten largest economies by GDP measured in PPP terms. Although in terms of major appliances the average unit price in China is forecast to grow to US$250, however this is still 250% less than the forecast for the USA. Volume and value gains will be sought through both emerging markets and developed markets over the long term, although it is clear over the medium term value is still going to be driven in developed North American and Western European markets.
Consumer markets, including appliances and electronics, in emerging economies will present enormous opportunities but their rapid growth also poses a challenge to the global environment.
- The top ten largest economies in 2010 in terms of total GDP measured at purchasing power parity (PPP) are the USA, China, Japan, India, Germany, Russia, the United Kingdom (UK), France, Brazil and Italy. PPP is a method of measuring the relative purchasing power of different countries' currencies over the same types of goods and services, thus allowing a more accurate comparison of living standards;
- Six out of the ten biggest economies in 2010 are advanced countries. With GDP measured at PPP terms accounting for 20.2% of the world total, the USA is the world's largest economy in 2010;
- In 2010, China ranks as the second largest economy in the world, with GDP making up 13.3% of the world total in PPP terms. Other emerging economies in the top ten biggest economies in 2010 are India, Russia and Brazil. Emerging countries have fared better than advanced economies overall during the global economic recession;
- By 2020, there will be major shifts in the world economic order in which emerging economies will become more important. China will overtake the USA to become the largest world economy in 2017 and there will be more emerging economies in the top ten economies by 2020 and beyond;
- The rise in importance of emerging economies will have implications for global consumption, investment and the environment. Large consumer markets in emerging economies will present enormous opportunities for businesses. However, income per capita will remain higher in the advanced world.
Top 10 largest economies by GDP in PPP terms: 2010 and 2020
Advanced economies are slowing down
Since the 1990s, advanced economies have experienced much slower growth compared to the developing world due to the rapid rise of emerging economies including China and India. The declining trend of advanced economies has been accelerated by the global financial crisis in 2008-2009:
- The USA is the world's largest economy. However, its share in world GDP in PPP terms has declined from 23.7% in 2000 to 20.2% in 2010 due to faster growth of emerging economies as well as the severe impact of the financial crisis in 2008-2009. Real GDP contracted by 2.4% in the USA in 2009. The economy has recovered since early 2010 owing to stimulus measures;
- Japan's economy recovered slightly in the mid-2000s after a prolonged period of stagnation due to inefficient investments and the burst of asset price bubbles. The country has been hit hard by the global economic downturn since 2008 as a result of its over dependence on trade and prolonged deflation. Population ageing has also accelerated Japan's economic slowdown. In 2009, annual real GDP shrank by 5.2%;
- In 2010, the European Union (EU) economies account for 20.6% of world GDP measured at PPP terms, down from 25.1% in 2000. Population ageing and rising unemployment have contributed to their slowdown;
- The IMF forecasts that annual real GDP growth of advanced economies will reach 2.3% in 2010 and 2.4% in 2011 after a contraction of 3.2% in 2009. This is much slower than the 8.7% expected in emerging Asian economies for both 2010 and 2011, which are driving the global economic recovery. Many advanced economies will also face the challenge of reducing public debts and government budget deficits, which will weigh on economic growth potential into the medium term.
Emerging countries are catching up and will overtake
Emerging economies are catching up with the advanced world. By 2020, there will be changes in the global balance of economic power:
- China's share in world total GDP in PPP terms has increased from 7.1% in 2000 to 13.3% in 2010. By 2020, it will reach 20.7%. China will overtake the USA to become the world's largest economy as early as 2017;
- India is the fourth largest economy in 2010. By 2012, it will have overtaken Japan to become the world's third largest economy, with GDP accounting for 5.8% of the world total in PPP terms. In the long term, India could grow even faster than China due to its younger and faster growing population;
- By 2020, Russia will rank higher than Germany in the top ten economies in terms of GDP measured at PPP terms and become the fifth largest economy. Brazil, on the other hand, will have overtaken both the UK and France to become the seventh largest economy in 2020. Being amongst the world's major exporters of energy and natural resources, Russian and Brazilian growth potential is promising although Russia's lack of economic diversification may cause problems in the longer term;
- By 2020, Mexico will have overtaken Italy to be the world's 10th largest economy by GDP measured at PPP terms. A growing population and proximity to the USA aid the country's economic development;
- With five emerging countries in the list of top ten largest economies, global power will become more balanced by 2020.
Top 10 largest economies as a percentage of the world total GDP in PPP terms: 2020
Source: Euromonitor International from IMF, International Financial Statistics and World Economic Outlook/UN/national statistics.
Implications of economic shift towards emerging economies
- With a huge population and rising household incomes, the consumer goods and service markets in emerging economies will provide enormous opportunities for businesses. In 2010, the total population of BRIC countries stood at 2,856 million people, compared to 737 million people in the G7;
- Opportunities in emerging consumer markets will include luxury goods as more people will be able afford them and the middle class continue to expand. In China, the number of households with an annual disposable income above US$10,000 (in nominal terms) will almost quadruple from 57.1 million in 2010 to 222 million households by 2020;
- Younger consumers will become more important. Despite population ageing in several emerging countries including China, the population in emerging markets is generally younger than in advanced economies. In 2010, the share of population aged less than 25 years old to total population is 39.9% in BRIC countries, compared to 27.6% in the EU. Young consumers represent potential in making large purchases such as cars, houses and household appliances. However, in absolute terms, China and India will continue to have the largest populations aged 65+ in the world in 2020;
- Foreign investment will continue flowing into emerging countries. Yet foreign investors will still face heavy regulations and corruption. Brazil, for example, ranked 129th out of 183 countries in the World Bank's 2010 Ease of Doing Business report due to cumbersome business procedures;
- Emerging countries will also become more important foreign investors, thus enhancing their influence in the global economy. Since the early 2000s, China and India have become major foreign investors in Africa. By accelerating “south-south” investments (investments to other emerging markets), emerging markets are also raising their stakes in terms of Research and Development (R&D);
- The rise in economic importance of emerging countries will lead to a rise in their global political influence. China, for example, has since 2010 become the third largest shareholder in the World Bank;
- The rapid growth of emerging countries, however, may accelerate global warming. China, India and Russia are among the world's biggest polluters. In 2009, Russia's carbon emissions per US$1.0 of output stood at 1,383 grams, compared to 151 grams in France;
- Since early 2010, the risk of overheating economies has been rising in emerging economies as a result of strong capital inflows and rising property prices. This may lead to inflationary pressures and raise the risk of the formation of asset price bubbles;
- The rapid growth of emerging economies may also lead to rising social unrest due to the unequal distribution of wealth.
- Many emerging economies will resume a high rate of growth from 2010 as the world recovers from the global recession. China, for example, will experience an average annual real GDP growth rate of 9.5% during 2010-2020;
- Compared to 2010, global economic power will be more balanced between developed and developing economies by 2020 with China, USA and India the three largest economies in the world in PPP terms. Euromonitor International forecasts China's GDP to be I$28,125 billion in PPP terms in 2020, accounting for 20.7% of the global total;
- On a per capita basis, however, advanced economies' GDP and spending power will continue to rank above emerging economies. In 2020, annual disposable income per capita is forecast at US$5,807 in BRIC countries, well below US$31,050 in the eurozone in US$ terms;
- Apart from boosting per capita income, the challenge for emerging countries is to improve social security and environmental protection in order to achieve a living standard comparable to that in advanced countries, as well as increasing consumer demand and spending in order to balance global consumption.
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