The C in BRIC
In 2001, Goldman Sachs economist Jim O'Neill coined the acronym BRIC from the initials of the world's four biggest emerging economies. China, that acronym's 'C', is predicted to replace the USA as the world's biggest economy by 2050. In 2008, this seems more inevitable than ever.
The report argued that, over the next 50 years, Brazil, Russia, India and China - the BRICs economies - could become a much larger force in the world economy. Using the latest demographic projections and a model of capital accumulation and productivity growth, we map out GDP growth, income per capita and currency movements in the BRICs economies until 2050. The results are startling.
If things go right, in less than 40 years, the BRICs economies together could be larger than the G6 in US dollar terms. By 2025 they could account for over half the size of the G6. Currently they are worth less than 15%. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050.The shift in GDP relative to the G6 takes place steadily over the period, but is most dramatic in the first 30 years. Growth for the BRICs is likely to slow significantly toward the end of the period, with only India seeing growth rates significantly above 3% by 2050.
And individuals in the BRICs are still likely to be poorer on average than individuals in the G6 economies, with the exception of Russia. China's per capita income could be roughly what the developed economies are now (about US$30,000 per capita).
As early as 2009, the annual increase in US dollar spending from the BRICs could be greater than that from the G6 and more than twice as much in dollar terms as it is now. By 2025 the annual increase in US dollar spending from the BRICs could be twice that of the G6, and four times higher by 2050.The relative importance of the BRICs as an engine of new demand growth and spending power may shift more dramatically and quickly than expected. Higher growth in these economies could offset the impact of greying populations and slower growth in the advanced economies.
As today's advanced economies become a shrinking part of the world economy, the accompanying shifts in spending could provide significant opportunities for global companies. Being invested in and involved in the right markets - particularly the right emerging markets - may become an increasingly important strategic choice.
The full BRIC report is available at www.goldmansachs.com