Long-term forecasts on EIU CountryData and Market Indicators & Forecasts

The Economist Intelligence Unit has traditionally produced five-year forecasts. However, many companies make strategic business decisions over timeframes in excess of five years. Therefore, the Economist Intelligence Unit has developed a methodology for producing long-term economic forecasts, which we have applied to the 60 largest economies. Our long-term projections will provide information to facilitate such decisions made over these longer timeframes. Long-term forecasts and scenarios are also the key to understanding some of the big economic issues that will shape global business in the coming decades.

The methodology is distinct from that used to generate our five-year forecasts-that is based on a "demand side" forecasting framework which assumes that supply adjusts to meet demand either directly by changes in output, or by the drawing down (or building up) of inventories. Such a framework is appropriate for constructing short- and medium-term projections where output can deviate substantially (but temporarily) from its long-run sustainable level. But a demand side framework is not appropriate for forecasting over the long term. Instead, we utilise a supply side framework, in which output is determined by the availability of labour and capital equipment, and the growth in productivity. More information about how we calculate these long-term forecasts can be found from by viewing our methodology.

Long-term forecasts and scenarios are also the key to understanding some of the big economic issues that will shape global business in the coming decades. The bullet points below present some of the preliminary conclusions:

* The economic outperformance of the US relative to Japan and the EU15 is expected to continue. Over the coming 25 years US real GDP growth is expected to average 2.7% per year, only slightly slower than current estimates of potential growth. The EU15 countries are expected to expand by 1.9% a year, better than currently being experienced but insufficiently improved to close the performance gap with America. Japan is expected toexpand by 1% a year.

* All these advanced economies will, to a greater of lesser degree, find demographic trends a drag on their economic performance. Aging populations will result in slow growth or even declines in the numbers available to work. But to some extend this negative factor will be offset by expected improvements in the regulatory enviroment, the institutional framework and the application of ICT (particuarly in Europe where the potential for catchup in this area is greatest).

* The major emerging markets will continue to post growth performances far in excess of those expected in the OECD. Russia and Brazil will expand by about 3% a year in real terms during the forecast period, while India and China will grow by about 6% per year. Towards the end of the forecast period Indian GDP growth will regularly exceed that of China, which will suffer from unfavourable demographics resulting in part from its one-child policy.

* The US economy will remain the largest in the world throughout the 25-year forecast period (measured at market exchange rates). But China will move up the league table from its current seventh place to be second by 2030 (although still half the size of the US market). Japan will be third place (second in 2005) and India fourth (11th in 2005).

* The picture looks very different when assessed using GDP per capita. The Nordic countries, which currently enjoy the highest per capita incomes in the world, will retain their position even in 2030. The US will follow close behind, as will Hong Kong and Singapore. But the big emerging markets will still be low income economies, with China ranking 55th in the world in 2030, and India 54th.

* These trends imply that the make-up of global demand will gradually shift away from the OECD towards the emerging world. The US, Japan and EU25's weight in the global economy will drop from about 70% today to about 55% in 2030 (using market exchange rates). The US share of total global demand will decline by a few percentage points over the forecast period, but Japan's weight in the global economy will halve and the EU's will drop by one-third. The importance India and China will increase three-fold.

* When economies are compared using PPP conversion rates instead of market exchange rates, the fastest growing emerging economies will account for an even larger slice of global demand. China, already second in the world when ranked by total GDP at PPP conversion rates, will have surpassed the US by 2020 and will extend its lead still further by 2030. India will overtake Japan to be ranked third. But viewed on a per capita basis, it is the OECD economies which will continue to dominate, with Singapore, Ireland, Norway and the US occupying the top slots, while China and India languish much further down the league table.

Back to forecasting and methodology