The global economy in 2075: Growth slows as Asia rises

Episode Summary

Executive Summary: Goldman Sachs’ Kevin Daly argues that the global economy is entering a much slower-growth era shaped by fading population growth, aging, and weaker productivity. While emerging markets still converge toward developed economies, China’s growth is set to slow markedly as demographics bite, India is poised to become the next major growth engine, and investors should expect long-run leadership to shift increasingly outside developed markets.

Main Topics: Why forecast out to 2075 (Priority: 5/5): The discussion frames long-term forecasting as a way to identify structural forces such as demographics and productivity, while filtering out short-term cyclical noise that makes near-term forecasts unreliable. Demographic slowdown and weaker global growth (Priority: 5/5): Global population growth has fallen sharply and is projected to approach zero, implying labor-force headwinds, aging populations, pension pressures, and slower world growth over coming decades. Emerging market convergence (Priority: 5/5): Lower-income economies continue to grow faster than rich economies, supporting a long-run rise in the global weight of emerging markets and a decline in global inequality between countries. China’s growth slowdown (Priority: 5/5): China is still expected to grow faster than the U.S., but its growth rate should slow due to demographic aging and a smaller scope for catch-up, even as it remains on track to surpass the U.S. in GDP. India’s long-term ascent (Priority: 5/5): India’s favorable demographics and improved productivity convergence make it a major long-term growth winner, with the potential to become vastly more important to the global economy by 2075. Risks to the long-term outlook (Priority: 4/5): The two biggest threats highlighted are rising protectionism that could reverse globalization and climate change, which disproportionately affects low-income emerging economies. Investor and corporate implications (Priority: 4/5): The work is most useful for corporates and long-horizon investors planning market strategy and portfolio allocation, suggesting future growth and opportunities will be increasingly driven by large emerging markets.

Key Arguments: Long-term forecasts are more useful for structural trends than for cyclical timing, so they help identify durable forces like demographics and productivity. Global population growth is slowing sharply, which will reduce labor-force growth and weigh on global GDP growth over time. The projected decline in global inequality is driven by convergence between countries, even though within-country inequality has risen in many places. China’s demographic reversal means its growth will slow despite continued catch-up, but it should still overtake the U.S. around 2035. India is becoming a much stronger long-term growth story because it combines faster population growth with improving productivity convergence. Globalization has not yet reversed, but protectionism and nationalism could derail the convergence-driven growth story. Climate change is a major long-term risk, especially for populous low-income economies with limited capacity to adapt. Investors should expect more of the world’s economic and financial market growth to come from emerging markets than from developed economies over long horizons.

Data Points: Global population growth 50 years ago: around 2% per year - Describes the historical pace of demographic expansion used to compare long-run slowdown. Global population growth today: around 1% per year - Shows the current reduced pace of population growth. Projected global population growth over next 50 years: zero - Indicates a near-flat global population path in coming decades. Peak global population: around 10 billion - Revised projection; lower than earlier expectations of above 11 billion. Previous projected peak global population: above 11 billion - Earlier expectations for end-of-century population size. China vs U.S. GDP 20 years ago: 12% of U.S. GDP - Illustrates how much China has converged since the original projections. China vs U.S. GDP today: 80% of U.S. GDP - Shows China’s dramatic rise in relative economic size. China’s estimated potential growth: around 4% per year - Still roughly double the U.S. rate despite slower growth ahead. China’s population: roughly three times the size of the U.S. - Explains how China can overtake the U.S. in total GDP despite lower per-capita income. China overtakes the U.S.: around 2035 - Goldman Sachs’ revised estimate for when China becomes the largest economy. Recorded episode date: Friday, January 6, 2023 - Timing of the podcast and its forecasts.

Pivotal Quotes: "The future is inherently uncertain, and the long-term future, in some sense, particularly one of the advantages of doing these long-term forecasts is that they strip out to a large degree the cyclical volatility that forecasters struggle with so much." — Kevin Daly: Explains why long-horizon forecasts can be more informative than short-term predictions. "Global population growth 50 years ago was around 2% per year. It's now down to around 1% per year. It is projected to fall to zero over the next 50 years." — Alison Nathan / Kevin Daly: Summarizes the demographic backdrop driving slower long-run growth. "One of the key takeaways is that over longer-term horizons, more economic and also financial market growth is likely to be driven by emerging market economies over time." — Kevin Daly: Investor-facing conclusion about where future growth leadership is likely to come from.

Implications: Long-term growth leadership is shifting toward emerging markets, especially India, while China matures and slows. Investors and corporates should plan for weaker global growth, larger demographic headwinds, and rising policy/climate risks.