February 14, 2015

Getting to a Quadrillion Dollar World with a closer look at GDP growth, education and demographics

Last week, Nextbigfuture described a future where China helps build out the infrastructure that the rest of the developing world needs over the next few decades. The shortfall of infrastructure is lowering the potential GDP growth by 2-3% in many countries. An extra 2% GDP growth globally would accelerate the arrival of a world with a quadrillion dollar economy measured in todays dollars.

China is leveraging its $4 trillion in reserves to provide low interest financing for high speed rail, export of Chinese nuclear reactors, factories and property development.

China is offering to fill the worlds infrastructure gap. This will enable all of the developing world to follow the China economic development plan. In a few decades, they will have no shortfall in transportation, industry, modern buildings, energy plants, energy grid and other infrastructure needs. China will also help them finance it.

There are various long term projections of the world GDP in 2035. BP has a projection using 2012 dollars that has world GDP at $210 trillion in 2035. This is without any bump from a larger buildout of infrastructure.

GE has a vision of an industrial internet which they believe could boost world economic growth by 10-15 trillion by 2035.

Superconducting engines and advanced additive manufacturing could increase the energy efficiency of airplanes by over 50%.

Complete deployment of multi-gigabit internet to everyone in the world via satelite, high altitude balloons and drones could boost world GDP by $22 trillion or more by 2030.

$210 trillion in 2035 not factoring in China boosting world infrastructure or Google-Spacex world internet or GE industrial internet

The world economy is at about $110 trillion in purchasing power parity (with 2011 Worldbank adjustments) in 2015 and is about $80 trillion in nominal exchange rate terms. The average per capita wealth is $15,200 on a PPP basis for each of 7.2 billion people.

Robert Fogel, nobel prize winning economist has projected China to have 123 trillion GDP in 2040 China's share of global GDP -- 40 percent -- will dwarf that of the United States (14 percent) and the European Union (5 percent) 30 years from now. So World economy Nobel Prize winning economist Robert Fogel is projecting a world economy of $307 trillion in 2040. This prediction is that the world economy will triple in 25 years. A further tripling afterwards would have a world economy of $900 trillion around 2065.

Robert Fogel (nobel prize winning economist) is the one who was projecting that the EU would have a $15-16 trillion economy in 2040

Fogel says the essential factor that is often overlooked: the enormous investment China is making in education. More educated workers are much more productive workers. U.S. data indicate that college-educated workers are three times as productive, and a high school graduate is 1.8 times as productive, as a worker with less than a ninth-grade education.

China is making a $250 billion-a-year investment in what economists call human capital. Just as the United States helped build a white-collar middle class in the late 1940s and early 1950s by using the G.I. Bill to help educate millions of World War II veterans, the Chinese government is using large subsidies to educate tens of millions of young people as they move from farms to cities.

The aim is to change the current system, in which a tiny, highly educated elite oversees vast armies of semi-trained factory workers and rural laborers. China wants to move up the development curve by fostering a much more broadly educated public, one that more closely resembles the multifaceted labor forces of the United States and Europe.

There have been other forecasts that China will have triple the number of higher education graduates of the USA by 2020.

The EU will likely fall further behind the USA in overall economic size. The EU has lost 20-25% relative to the USA over the last 30 years.

Nextbigfuture would think that the EU could lose another 30-50% against the USA. If the USA was at 14% of world GDP then Europe would be 7-10%. However, Fogel could be right that the EU could basically be flat for 25 years. The EU is at 13.5 trillion euros of GDP now. An exchange rate of 1.13 gives them a GDP of 15.2 trillion US dollars. Purchasing Power Parity wise Europe has less GDP because of higher costs.

Professor Wendell Cox has used the 2013 IMF economic statistical data to make comparisons between the US, Europe, China, India, and Japan from 1980 to 2018.

There was a Worldbank adjustment of purchasing power parity based on a new 2011 survey. This result boosted the purchasing power parity (PPP) levels of China and India by about 24%.

Europe has lost about 25-30% PPP GDP relative to the United States from 1980 to 2014 and is expected to lose more from 2014 to 2018.

Germany population to drop by 25% by 2060

Canada could catch up to the population of Spain in 2042 and Germany in 2060. Germany population is projected to fall by quite a bit.

Europe's future demographics are not aligned with strong economic growth.

Eurostat recently published projections out to 2060 as well.

China will likely continue to strengthen become double to four times the economy of the USA.

Some say but China has to stop its economic growth with per capita income far less than the USA or Europe

Did Singapore stop its per capita growth at a lower level than the USA or Europe ?

Singapore had less than $400 per capita GDP in 1960 and less than $550 in 1965.

Malaysia expelled Singapore in 1965.

Singapore had less per capita income than Jordan in 1965. Singapore had a population of 1.89 million in 1965.

Singapore now has a population of 5.5 million.

But Singapore is a city and China is a big country

I have forecast that China and the world will head to over 90% urbanization.

200 cities with a population of 6.5 million would be 1.3 billion people. This would be 90% of the population of country with 1.43 billion.

SOURCES - GE, Google, Spacex, Eurostat, Wikipedia, BP Energy Outlook, Foreign Policy, indexmundi

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