Predicting the future is famously easy, and since the world’s leading investment banks can plot out the coming year with ease, why not try the next 50?
That is what Goldman Sachs has attempted in a new report imaginatively titled ‘The Path to 2075’. This updates long-term growth predictions made in 2003 and 2011, primarily about the prospects for the BRICs economies (a name famously coined by Jim O’Neill, Goldman’s head of economic research when the first report came out).
Before we dive into D Sol’s crystal ball, let’s contextualise 2075 in popular culture, as 53 years feels a long time away. The landing point lands roughly in the middle of the window in which Cormac McCarthy’s The Road is set. In the book/movie, a father and son encounter despair and cannibalism in an ashen wasteland. Other silver-screen signposts include:
— Mad Max: Fury Road (2015), in which militia fight across an irradiated Australian desert wasteland to secure water and fuel, set in the 2060s.
— Dredd (2012), in which a supercop and a mutant rookie hunt criminal in a vast metropolis nested in a post-apocalyptic wasteland, set in 2080.
Out of those two, FT Alphaville would rather live in the world of Dredd — better to just be struggling to get your drug fix than struggling to get, you know, water. That would suggest that things will be on an upswing, from a living standards perspective.
Weirdly, none of this features in Goldman’s note. Instead, Kevin Daly and Tadas Gedminas have identified “four major themes” for the coming half-century (condensed here):
1) Slower global potential growth, led by weaker population growth.
2) EM convergence remains intact, led by Asia’s powerhouses. Although real GDP growth has slowed in both developed and emerging economies, in relative terms EM growth continues to outstrip DM growth.
3) A decade of US exceptionalism that is unlikely to be repeated.
4) Less global inequality, more local inequality.
In 11 years since the last update, it’s plus ça change, says GS:
In the period since our 2011 projections, the global economy has been buffeted by a number of secular challenges and economic shocks: disappointing productivity growth in the aftermath of the Global Financial Crisis (GFC), a rise in global protectionism, the Covid-19 pandemic and, more recently, the war in Ukraine. Despite these headwinds, most of the key features of both our 2003 and 2011 projections have remained intact. However, others now need to be re-visited.
Despite this slight tone of resentment at the homework set, Goldman is making some projections, including:
. . . the world’s five largest economies in 2050 (measured in real USD) will be China, the US, India, Indonesia, and Germany (with Indonesia displacing Brazil and Russia among the largest EMs). By 2075, with the appropriate policies and institutions, Nigeria, Pakistan and Egypt could be among the world’s largest economies.
Here’s the tabular (/pseudo bumps-chart) version of that:
And here’s a way more exciting version, including a helpful indication of which direction the projections are:
Neat! You’ve gotta hand it to India for timing things perfectly to pip the US to second place for 2075, photo finish.
Now is as good a time as any to revisit this, uh, graphic, from the 2011 report:
Obviously China’s pretty special, but on its own measures, Goldman was wrong about, uh, Russia, Brazil and India. Which is weird given (to repeat) “most of the key features of both our 2003 and 2011 projections have remained intact”. Oh well.
For those curious, here’s 2011’s league table for 2050 versus the new 2022 version:
There are some pretty big moves there! Goldman doesn’t deign to go into details about (for example) why about a decade ago it thought Russia would be the world’s fifth-biggest economy by 2050, and now thinks it’ll be number 10. The closest we get is an acknowledgment that Russia “underperformed our projections”, which is a pretty circular way of looking at things.
Back to the future, Goldman conceded that growth has not been as strong as it predicted:
It doesn’t really try to explain why, which would surely be the first place to start, instead choosing to “improve” its models. It also prompts the question: if the projections had been right, would they still have taken these steps to improve the models?
The charts that follow include plenty of looking backwards, and what appears to be a guest contribution by Jackson Pollock:
The report is on slightly more comfortable ground looking at things like population, echoing the widely-acknowledged point that slowing global growth means the number of humans on the planet has possibly peaked:
Goldman confidently asserts:
This slowdown in population growth is a ‘good problem’ to have, in that global population control is a necessary condition for long-term environmental sustainability.
Oh, OK!
Much of the rest of the report is a grab-bag of investment tips and overwrought modelling. It strays dangerously close to self-awareness when the authors write, in trying to explain with EMs have underperformed DMs for returns over the past decade:
Financial markets reward and penalise unanticipated shifts in trends but are indifferent to the predictable continuation of trends.
There’s a lesson there, somewhere.
Source: Economy - ft.com
