China, India lead in Asia but new growth sources will shake up the global economy

Name: Global coronavirus cases pass 40 million mark as infection rates rebound in the US and Europe
Uploaded: 2020-11-11T22:45:14.000Z
Duration: 3 min 5 s
Description: Global coronavirus cases pass 40 million mark as infection rates rebound in the US and Europe

The latest World Economic Outlook projects China and India to grow as economic forces, with China’s economy becoming larger than the rest of the G7 combined by 2025

Big shifts among smaller economies are also expected as Vietnam, Bangladesh and Ethiopia emerge as new drivers of global growth and investment

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Customers gather at a makeshift market near the Van Trung Industrial Park in Viet Yen district, Bac Giang province, in Vietnam on October 9. Bac Giang province’s exports have risen more than tenfold in five years and are expected to reach US$11 billion this year, just one example of Vietnam’s rapid economic progress that is expected to continue through to 2025. Photo: Bloomberg

Laura CaronandErwin R. Tiongson

Published: 6:45am, 12 Nov 2020Updated: 7:20am, 12 Nov 2020

The International Monetary Fund recently released the latest edition of the World Economic Outlook (WEO) and its global economic growth forecasts for 2020 and 2021. Policymakers use these forecasts for macroeconomic management, particularly in a turbulent period like this year.

The WEO also includes longer-term forecasts for the next five years which, though largely unnoticed when they are published, can offer valuable insights into how the global economy might evolve. Remarkable changes were visible in the global economy through to 2025. Some were expected, but there were some surprises as well.

First, how reliable are these estimates? Forecasting GDP growth rates is difficult. WEO forecasts are subject to error, though they have been found to be at least as good as others. We are, however, primarily interested in the relative size and ranking of the world’s economies, not the specific annual growth forecasts.

Our analysis finds that, for example, the WEO five-year GDP forecasts from October 2014 correlated closely with outcomes as of 2019 for the 185 countries studied. The Spearman correlation – which uses only relative rankings rather than absolute GDP numbers – is also high.

Second, assuming these longer-term forecasts are meaningful, what do they tell us about the world’s economies in 2025? We find that the world that comes out of the pandemic will be vastly different from the one after the global financial crisis, in large part because of diverging fortunes in the past decade and during the current pandemic.

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Global coronavirus cases pass 40 million mark as infection rates rebound in the US and Europe

China and India have been among the largest economies in the world in current US dollars for more than a decade. China is projected to remain the second-largest economy in the world by this measure, behind the United States, through to 2025.