The Philippines and Peru are among emerging economies that would become much more prominent in the next few decades, helped by demographics and rising education standards, with the Philippines set to leapfrog 27 places to become the 16th largest economy by 2050, according to a prediction of international bank HSBC.
The bank expected China to overtake the United States as the world’s biggest economy by 2050, and said strong growth rates in other developing countries would help drive the global economy.
“Plenty of places in the world look set to deliver very strong rates of growth. But they are not in the developed world, which faces both structural and cyclical head winds. They are in the emerging world,” the bank said in a report “The World in 2050.”
HSBC based its forecasts on fundamentals such as current income per capita, rule of law, democracy, education levels and demographic change.
The bank said the Philippines would become a “star performer” in terms of its economic leap in the global rankings.
HSBC said the Philippines was likely to post an average growth of 7 percent in the next 40 years.
Breaking down the average growth forecast, the bank said the country would likely grow by 8.4 percent from 2010 to 2020, by 7.3 percent from 2020 to 2030, and by 6.6 percent from 2030 to 2040, and by
5.8 percent from 2040 to 2050.
It said the advantage of the Philippines was its favorable macroeconomic fundamentals and improving governance.
Economic officials of the government often harp on what they call the country’s positive macroeconomic fundamentals that include stable inflation, sustained growth over the years (it grew even when the global economy shrank in 2009), stable banking and financial system, and improving fiscal position.
Growing population a plus
HSBC said the Philippines was also put at an advantageous position by its growing population, which, if properly educated and trained, should help the economy generate more income over the next decades.
The fact that the Philippines has relatively low income gives it much room for growth, and that its favorable fundamentals will help the country maximize that room, the bank said.
“The most potent recipe for growth is a country that scores highly on the fundamentals discussed but currently has low income per capita. These economies should deliver the highest growth in income per capita as they ‘catch up’ with those with similar fundamentals,” HSBC said.
According to HSBC’s forecast, the Top 20 largest economies by 2050 will be China, United States, India, Japan, Germany, United Kingdom, Brazil, Mexico, France, Canada, Italy, Turkey, South Korea, Spain, Russia, Philippines, Indonesia, Australia, Argentina and Egypt.
The Philippines’ 16th rank by 2050 in terms of economic size marks a 27-notch improvement from its performance in 2010, said HSBC.
The bank thus said that the Philippines was expected to post the biggest leap in terms of economic ranking over the next four decades. “The Philippines looks set for a multidecade run of strong growth.”
HSBC said Peru should average annual growth of 5.5 percent over the same period.
The sheer pace of population growth in countries such as Nigeria and Pakistan means that these economies will swell in size to be included among the 100 biggest economies even if their incomes on a per-capita basis remain low.
HSBC said lower scores for rule of law in Latin America constrained its per capita income projections for the region though it noted that Brazil was making headway in this aspect.
“The losers are the small population, aging economies of Europe,” added the bank, which said the demographics in much of Europe underscored concerns about the debt problems faced by many of the continent’s governments.
If sufficiently open to modern technology, developing countries could enjoy many years of robust GDP growth although they could struggle for growth drivers once they have adapted to technological advances,
“The initial years of development could be described as ‘copy-and-paste’ growth, as countries open themselves up and adapt to the world’s existing technologies. Once the ‘copy-and-paste’ growth is complete … many economies struggle and get stuck in what is often known as the middle-income trap.”
“But many of the countries we are considering are still at such an extremely low level of development that there are years of this ‘copy-and-paste’ growth ahead,” it added.
It was here that many of the pessimism about China was misplaced, the bank argued.
“One of the most commonly cited reasons for concern about China is the high rate of investment as a percentage of GDP … (But) we believe the strong rate of investment is entirely justified—providing China with much needed basic infrastructure,” it said.
The bank said high levels of education in Central and Eastern Europe meant that the regions could enjoy strong income per capita growth in the coming years before weak demographics eventually sap economic growth.
“While education rates are similar (to the West), the average income per capita in the central and eastern Europe block is just one fifth that of the developed world. For this reason … economies have great scope to catch up in income per capita,” HSBC said.
“Some of the smaller Eastern European countries—Romania, the Czech Republic and Serbia—(should) all do extremely well, particularly in the coming decade, before demographics prove to be more of a drag.” With a report from Reuters
Originally posted at 09:02 pm | Thursday, January 12, 2012