David is a 19-year-old Canadian student currently attending the University of Guelph. He currently studies Public Management and economics with hopes of one day becoming an accomplished journalist. David enjoys reporting on global events and actively try to make a difference in the world.
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Monaco City View From The Mountains – Monaco has the highest GDP Per Capita of any nation on Earth at $165,000 US dollars – Image acquired from wallpaperscraft.com all rights reserved]
We all know the world leaders in standard of living as of today, but how do we even go about measuring such a vast variable? And furthermore, how do we hypothesize what nations will reach affluence in ten years, or even thirty years?
That is what I’m aiming to accomplish with this article.
For starters, I believe GDP at PPPs (purchase power parity – basically the purchasing power of a currency) is a better indicator of average living standards or volumes of outputs or inputs, because it corrects for price differences across countries at different levels of development.
Furthermore, I will assess various GDP per capitas (average wealth of each citizen) and trends among this variable to see which countries will remain, and which will improve in terms of living standards (gdp per capita).
In general, price levels are significantly lower in emerging economies so looking at GDP at PPPs narrows the income gap with the advanced economies compared to using market exchange rates. However, GDP at MERs is a better measure of the relative size of the economies from a business perspective, at least in the short term. For long run business planning or investment appraisal purposes, it is crucial to factor in the likely rise in real market exchange rates in emerging economies towards their PPP rates.
This could occur either through relatively higher domestic price inflation in these emerging economies, or through nominal exchange rate appreciation, or (most likely) some combination of both of these effects. When estimating GDP at market exchange rates in 2050, a similar methodology is therefore adopted as in the original ‘World in 2050’ report where market exchange rates are converging to PPP rates with different converging factors depending on the type of economy.
This leads to projections of significant rises in real market exchange rates for the major emerging market economies due to their higher productivity growth rates, although these projected MERs still fall some way below PPP levels in 2050 for the least developed emerging markets. We have, however, updated our methodology here with new econometric estimates of how this emerging market real exchange rate appreciation is related to relative productivity growth. For the advanced economies, we assume that real exchange rates converge very gradually to their PPP rates at a steady pace over the period from 2015 to 2050. This is consistent with academic research showing that purchasing power parity does hold in the long run, at least approximately, but not in the short run.
Let’s take a look at PwC’s forecasts for the next 30 years with the graph below.
Looking at the top three, we see China overtake the US in terms of Real GDP evaluated at 2014 dollars, and India remaining in a not-so-close third place. India, however, is poised to see tremendous economic growth from years 2030 to 2050. This model alone sees their Real GDP rising by 20,633 evaluated in 2014 billions of dollars, which is the second largest growth in GDP seen on the list next to the 26,866 rise that China is expected to see over the same period.
The rest of the top 12 is poised to remain quite steady for the next 30 years or so, with a few expected outliers (highlighted in blue).
Indonesia and Nigeria are expected to see massive economic growth come mid-century, as these countries continue to become more industrialized.
A report from the World Economic forum notes this about Nigeria’s expected future growth:
“With roughly 170 million inhabitants, Nigeria has Africa’s largest population. But it has only recently been acknowledged as having the continent’s largest economy – 26th in the world – following the release of “rebased” data putting GDP at $510 billion last year.
MGI estimates that, in 2013-2030, Nigeria could expand its economy by more than 6% annually, with its GDP exceeding $1.6 trillion – moving it into the global top 20. Moreover, if Nigeria’s leaders work to ensure that growth is inclusive, an estimated 30 million people could escape poverty.
By 2030, more than 34 million households, with about 160 million people, are likely to be earning more than $7,500 annually, making them aspiring consumers. This implies a potential rise in consumption from $388 billion annually to $1.4 trillion – a prospect that is already attracting investments by multinational consumer-goods producers and retailers.”
Nigeria isn’t the only African nation poised for economic growth; South Africa and Egypt are also among the top 30 nations in the world in terms of GDP and are both expected to gain in value in coming decades.
Africa’s future is indeed looking bright in terms of future investment opportunities, as it receives some of the highest levels in sunlight anywhere in the world, which will create an abundance of solar investment opportunities. Furthermore, Africa is filled with natural resources such as diamonds, gold, agriculture, and fish along its coasts, that increased infrastructure will help business become more sustainable.
Visualizing Global Living Standards
Take a brief look at the diagram above, the countries that have the highest GDP per capita are located in North America, Northern Europe, or Australia. Falling right behind these countries are those in central Europe, Eastern Asia (Japan and South Korea) and Southern Australia (New Zealand).
Below these nations are India, Vietnam, and Malaysia, among some African nations like Nigeria and Sudan.
China lies below India in terms of per capita GDP, but both nations will experience consistent growth in this area for decades to come, which will translate into a more robust middle class and alleviate a great deal of poverty.
Take a good look at this map, because GDP per capita and living standards will rise in almost every single nation on Earth. In other words, this map could become very yellow and orangish.
GDP Per Capita In The Next Thirty Years: Unlikely Contenders
Take a look at the graph below, it details average real growth per capita over the years 2014 until 2050. If you want to see which countries will have the most improved living standards on the planet during this time, look no further. But please note that just because living standards have improved drastically in these areas, does not mean that their living conditions will be comparable with established powers like the US and China.
The most important takeaway from this graph is with India I believe. India already has a strong economy, but just measuring their real GDP is not enough to determine potential future living standards in the nation because of how high their population is. This graph gives us a much better look at how GDP per capita will rise, and the PwC annual report shows a 4.1% rise over the next 30 or so years – although it may not seem like a lot, this rise will have a profound impact on the lives of Indians, and will ultimately, raise living standards across the nation.
Other standouts here are of course, Malaysia and Thailand, who are some of the world’s leaders in opioid (heroin) production, and have some of the lowest GDP per capita levels on the planet as of now. [Read more about heroin production in Malaysia and Thailand here.]
China is of course expected to see steady gains in the next few decades, as industrialization continues to flourish in the Asian superpower.
Continuing on this graph, we can evaluate some of the richest nations on the planet and see that all of them will experience consistent growth in the coming decades, with Poland, Brazil, and Russia paving the way in terms of GDP per capita.
Now, this doesn’t necessarily correlate to higher living standards, it just means that population density is lower in these countries, and there is simply more working opportunities for citizens there. It is actually commonly understood that the future of Russia’s economy does not look so great, and a 2.7% increase over the next 30 years may seem quite optimistic, but I digress.
I think its safe to say that the countries with the highest living standards today will, for the most part, have the highest living standards thirty years from now, with a few new friends to share a seat at the coveted table.
Several European countries like Switzerland, Germany, the UK, and France, will all continue to have high living standards thirty years from now. Furthermore, the US, Canada, Japan, Australia, China, and India will continue to thrive, among others.
The global economic climate is looking great for the next several decades – even if inevitable recessions loom. For the first time in recent history, an African nation will have one of the largest GDP’s on the planet, and the continent as a whole, will experience increasing living standards.
This is why I believe it is more important to focus on which nation’s will improve the most over the next thirty years rather than who will have the highest living standards because in all honestly, living standards are relative and extremely difficult to measure accurately.
[Disclaimer – All information has been retrieved from PwC UK corporation’s 2014 annual report, which can be found here. ]