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The World in 2050:

The shift of global economic
power and the challenge of
automation

John Hawksworth,
Chief Economist, PricewaterhouseCoopers LLP
Author of "The World in 2050“

December 2018
Agenda

Our modelling Projected real Projected relative Implications for

approach GDP growth rates size of economies public policy -
and average with a focus on
income levels
4
automation and
jobs

55

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 How have we modelled long-term GDP trends?

• Our model ignores short-term cyclical variations, focusing instead on long-term supply side
fundamentals.
• We assume no major global catastrophes or political shifts that cut economies off from the flow of new technologies and
ideas.
• We take the US as representing the ‘global frontier’ in terms of technology and productivity that other
economies seek to catch up with over time. US labour productivity growth is assumed to grow at a trend rate of
1.5% per annum.
• We use a model where GDP is driven by four main supply-side factors, using a Cobb-Douglas production function.
• GDP estimates are presented in Purchasing Power Parity (PPP) and Market Exchange Rate (MER) terms

Investment in
Working-age human capital
population growth (education levels)

Catch-up with US
Investment in
total factor
physical capital
productivity levels

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Projected real GDP growth rates

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We expect the shifts in global economic power we have seen since 2000 to
continue, with Vietnam and India remaining two of the fastest growing
economies and Indonesia also maintaining relatively strong growth

Correlation between historical and projected

The top 15 fastest growing economies over the GDP growth at PPPs
1 next 34 years will all be developing and
emerging market economies according to 6%

Projected average annual GDP growth in PPPs (2016-

our projections.
Vietnam
5% India
Bangladesh
Vietnam and India have the potential to
Nigeria
be the fastest growing economies, with 4%
annual average growth of around 5% over the
2 Mexico Indonesia

2050)
period to 2050. Chinese growth will slow as its China
population ages and its economy matures, but 3%
Brazil Turkey
Indonesian growth should hold up better
UK
Russia
2% France Canada

US
Italy
1% Germany
Large advanced economies such as the G7
3 are likely to see continued relatively modest
Japan

growth of around 1-2% per annum

0%
0% 2% 4% 6% 8% 10%

Average annual GDP growth in PPPs (2000-2015)

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Population growth will support growth in most emerging markets,
including Indonesia, but creating enough jobs to realise this demographic
dividend will be a challenge, particularly in an age of automation
Real GDP growth broken down into:
1. Average population growth; and
2. Average growth in GDP per capita, which is closely related to labour productivity growth

Vietnam
6%
India
Average real GDP growth p.a. (2016-2050)

Nigeria
5% Indonesia

China
4% Brazil
Russia
UK
3% US Germany Japan

2%

1%

0%

-1%

Average Pop Growth p.a % Average Real Growth per capita p.a % Average GDP growth p.a. (in domestic currency)

World in 2050 December 2018

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China, India and Indonesia are projected to continue their current strong
growth rates to at least 2020, before slowing down progressively in later
decades as they mature (as happened to Japan, South Korea and other
earlier emerging economies in previous decades)
8%

7%
Average annual growth in GDP in PPPs

6%

5%

4%

3%

2%

1%

0%
India Vietnam China Indonesia US UK EU27 World

2016 - 2020 2021 - 2030 2031 - 2040 2041 - 2050

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Projected relative size of economies
and average income levels

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Emerging economies will dominate the list of the world’s 10 largest
economies and increase their share of world GDP to almost 50% by 2050
Rankings of GDP at PPPs Share of world GDP at PPPs

2016 2050 100%

China 1 1 China 90%

Rest of the Rest of the
world world
US 2 2 India 80%

India 3 3 US 70%

Japan 4 4 Indonesia 60%

Germany 5 5 Brazil 50% E7

E7
Russia 6 6 Russia 40%

Brazil 7 7 Mexico 30%

Indonesia 8 8 Japan 20%

G7
UK 9 9 Germany 10% G7

France 10 10 UK 0%
2016 2050

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By 2050, the E7 are projected to be significantly larger than the G7 even at
market exchange rates (MERs), driven primarily by the continued rise of
China and India
140,000

120,000

E7 120%
GDP (US$ bn at constant 2016 values)

100,000 larger than

G7 E7 67%
larger than
80,000
G7

60,000

China &
India China &
40,000 India

20,000
China & US US
US India China &
US
India
0
2016 PPP 2050 PPP 2016 MER 2050 MER

US China & India Other G7 Other E7

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The rise of China and, in the long run, India will gradually push down the
US and EU27 shares of world GDP at PPPs

25%

China
Projected share of world GDP in PPPs

20%

India
15%

US

10%
EU27

5%

0%
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

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Broadly similar trends are projected for GDP shares at MERs, but China
and India are starting from lower levels on that measure

25%

China
20%
Projected share of world GDP in MERs

US
15%

EU27

10%

India

5%

0%
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

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We expect to see other emerging ASEAN markets such as Indonesia,
Vietnam and Philippines rise strongly up the global GDP rankings by 2050,
although this depends on long-term progress on structural reforms

20th
19th
4th
Major fallers
(GDP at PPPs)

32nd 28th 8th

Vietnam Philippines Indonesia Australia Italy Spain

19th 12th 15th

Major risers
(GDP at PPPs) 28th
21st
26th

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Average incomes are likely to remain lower in emerging markets than the
G7 even in 2050, but they should close a significant amount of the gap by
then (e.g. China’s average real income level in 2050 similar to UK today,
Indonesia’s average income level in 2050 could be similar to Italy today)
120
GDP per capita in PPP terms (PPPs, 000s,constant US$)

100

80

60

Indonesia
40

20

2014 2050

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Challenges and opportunities for
public policy – with a focus on
automation and jobs

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Challenges and opportunities for public policy

Protectionism &
world trade Institutions

Sustainability and
Infrastructure
climate change

Automation and jobs

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Our analysis estimates the potential net impact on jobs in
China of AI and related technologies

Artificial intelligence (AI)

Robots
Drones

Autonomous
vehicles Blockchain

Augmented &
3D printing virtual reality

Internet of things
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AI automates jobs through the displacement effect but also
creates jobs through the income effect

Displacement effect:
humans lose jobs to AI, robots
and related technologies
Firms and
shareholders
reinvest Income effect:
profits in new
Firms hire more workers
products and
services to meet the extra
demand
AI and related
technologies
become more cost-
effective than humans Technology boosts Productivity and
competition lead to
productivity,
lowering cost and/or
lower prices,
increasing quality increasing real income
and spending

Technology
allows for new
Firms enter
products the market as
profits rise
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Displacement effect: we estimate around 26% of existing jobs
in China could be automated by 2037

Estimated proportion of existing jobs in China that could be displaced in each sector over the next
20 years (2017-37)

Industry

Agriculture

Construction

Services

Total

0% 10% 20% 30% 40% 50% 60%

Estimated actual job displacement Jobs at potential risk of displacement

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Income effect: we estimate that AI will account for varying
shares of growth across Chinese industry sectors, which will
generate additional jobs

Estimated cumulative growth in jobs in China linked to increased adoption of AI and related
technologies

Services

Construction

Industry

Agriculture

Total

0% 10% 20% 30% 40% 50% 60%

Total Agriculture Industry Construction Services

Draft September 2018

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Net effect: we estimate that AI and related technologies
could boost Chinese employment by around 12% (around 90
million) by 2037

Net effect of AI on jobs Net effect of AI on jobs

(millions) (% change, 2017-37)

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Services projected to benefit the most in terms of the net
impact of AI on jobs, but the nature of jobs will change
across all sectors of China’s economy – similar conclusions
may apply to other emerging economies such as Indonesia

Services (+29% / +97m) Agriculture

This positive impact reflects high expected AI-related growth in
(-10% / -22m)
demand for services and the fact that many services roles such as in Automation will
healthcare and tourism require a “human touch”. continue to increase
There will also be a need for highly technical skills to design and create in the agricultural
AI and related technologies. Other services sectors may see less sector, reinforcing the
positive jobs trends in the long run, including financial services, public shift in jobs away
administration and transport. from this sector.

Construction (+23% / +14m) Industry (+3% / +4m)

Construction will remain a growth
sector as Chinese urban populations
continue to grow. Automation will
displace some jobs, but also create new
opportunities, including in overseas
projects by Chinese companies.
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We estimate a broadly neutral net impact for
manufacturing jobs, but with significant shifts in
employment away from low cost manufacturing
towards higher valued activities, including making
the robots, drones and autonomous vehicles
needed for the 4th Industrial Revolution.
December 2018
22
Implications for public policy – how to steer towards our
optimistic scenario – applies to other emerging economies
not just China

Maximising the benefits of AI Mitigating displacement effects

Ensure the benefits of AI are

Implement Government AI
shared equally (e.g. through
Plans
stronger social safety net)

Capitalise on rapid urban

Nurture an adaptable labour
expansion by putting AI and
force by investing in STEM
related technologies at the
skills and retraining of older
heart of ‘smart city’ planning
workers

Foster global and open

Facilitate geographic labour
innovation networks
mobility (including through
appropriate immigration
policy)

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Summary: 5 key messages

1 2 3 4 5

Shifts in
The world global Drivers of Policy Challenge of
economy economic global growth implications automation
power

The world The E7 could Emerging To realise this There will be job
economy could account for economies will potential, displacement in
more than c.50% of world drive global governments need to agriculture and parts
double in size by GDP by 2050, up growth. implement structural of manufacturing but
2050, assuming from 35% today. Vietnam, India and reforms to improve also offsetting job
broadly growth- Emerging Indonesia could be macroeconomic creation in services
friendly policies and economies could be three of the fastest stability, adapt to and high tech
no global six of the largest growing larger new technologies, manufacturing if
catastrophes. seven economies in economies over this diversify economies countries can invest
the world by 2050 period. and reduce in AI/robots
inequality..

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For more information on this research, please contact:

John Hawksworth
Chief Economist,
PricewaterhouseCoopers LLP
E: john.c.hawksworth@pwc.com

For related PwC services and insights please see:

http://www.pwc.co.uk/economics

http://www.pwc.com/world2050

http://www.pwc.com/gx/en/issues/high-growth-markets.html

https://www.pwc.com/gx/en/issues/data-and-analytics/artificial-intelligence/technologies-on-jobs-in-china.html

World in 2050 December 2018

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