China to still be the second-largest economy in 2050 – CE

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Capital Economics’ long-run forecasts suggest that China will still be the second largest economy, measured at market exchange rates, in 2050. The most likely scenario is that slowing productivity growth and a shrinking workforce prevent China ever passing the US. But there’s a possibility too that China overtakes around 2030 before dropping behind again as the demographic headwinds to its growth mount.

Key quotes

“China’s economic weight won’t increase steadily relative to the US through time. On our forecasts, China reaches 87% the size of the US in 2030, up from 71% now. But by 2050 it has dropped back.”

“By 2030, China’s workforce will be shrinking by more than 0.5% each year. The US workforce will be expanding throughout the next 30 years, supported by higher fertility than in China and immigration.”

“While the demographic drag will hold back China’s GDP, we expect output per worker still to be growing faster than in the US after 2030 and for incomes to keep catching up. Average incomes in China in 2050 would be just over a fifth of those in the US, roughly where Poland and Hungary are relative to the US today. Measured in PPP terms, rather than at market exchange rates, China’s economy is already number one.”

“But GDP at market exchange rates is linked to a country’s ability to project its power and values globally, including by setting norms for international economic and financial relations. It may not matter much in this regard whether China is 10% bigger or 10% smaller than the US, but it would make a difference if the gap was wider: forecasters more bullish on China expect it to be at least half as big again as the US in 2050.”

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