Goldman Sachs predicts India will overtake the US to become the second largest economy in 2075, while Indonesia will jump up to the forth spot.

Goldman Sachs has just published its “Global Economics Paper: The Path to 2075 — Slower Global Growth, But Convergence Remains Intact” which reveals the organization’s projections on the global economy’s major themes and EM and DM growth to 2075.

According to Goldman Sachs, there are 4 four major themes for the global economy.

Theme #1: Slower global potential growth, led by weaker population growth.

It implies that during the next ten years, global growth will average just under 3% annually and be on a steadily falling path, mostly due to slower labor force expansion. Global population growth has decreased by half during the previous 50 years, from 2% to less than 1% annually, and is anticipated to reach nearly zero by 2075.

Theme #2: The continued convergence of the emerging markets (EM), driven by Asia’s powerhouses.

Although real GDP growth has slowed in both developed and emerging economies, relative to developed market (DM) growth, EM growth is still greater.

Therefore, China, the US, India, Indonesia, and Germany will be the world’s five largest economies in 2050 (measured in real USD) with Indonesia displacing Brazil and Russia among the largest EMs. With the right institutions and policies, Nigeria, Pakistan, and Egypt could be among the largest economies in the world by the year 2075.

Theme #3: The decade of US exceptionalism, which is unlikely to happen again.

Over the previous ten years, the US has performed relatively better than anticipated. However, history indicates that this is not likely to happen again over the following ten years. Large EM economies continue to have higher potential growth than the US, and over the next 10 years, some of the US Dollar’s exceptional strength of the past few years is expected to unwind.

Theme #4: Less global inequality, more local inequality.

Global income distribution is now more evenly distributed as a result of EM convergence during the past 20 years. While wealth disparity between countries has decreased, income inequality within countries has increased. Future globalization faces a significant difficulty as a result of this.

The rise of emerging economies like India and Indonesia in the next 10 to 50 years is arguably one of Goldman Sachs’ most noteworthy projections in this study.

The figures 1 and 2 predict the real US Dollar value of major economies through time combining Goldman Sachs’ GDP projections and long-term real exchange rate projections. These suggest that China will surpass the US economy as the largest economy in the world around 2035. This is roughly ten years later than what Goldman Sachs predicted in 2011, mostly because of the organization’s downward adjustments to Chinese potential growth.

Despite the fact that China’s growth prospects currently appear gloomy, Goldman Sachs also highlighted a number of significant factors that led them to expect China to surpass the US in the near future. Those factors are: First, China’s GDP has already cut the majority of the gap with the US GDP (from 12% of the US GDP in 2000 to just under 80% today). Second, Goldman Sachs’ updated forecasts show that potential growth in China is still much larger than in the US (4.0% vs. 1.9% for 2024–29, shown in the figure 3), despite major downward adjustments. Third, in addition to differences in prospective growth, a portion of the US Dollar’s real overvaluation compared to the Chinese Yuan is anticipated to be unwound over the next 10 to 15 years.

Goldman Sachs also projects China, the United States, India, Indonesia, and Germany are predicted to be the five largest economies in the world in 2050. Indonesia has an impressive jump in this list when displacing Brazil and Russia among the list of largest EMs over this horizon.

The US, China, and India are expected to be the three largest economies in the world in 2075, with India overtaking the US. Due to its better demographic outlook, US potential GDP growth is predicted to be significantly faster than China’s at that horizon. With the appropriate policies and institutions, economies like Nigeria, Pakistan, and Egypt could grow to be some of the largest in the world as a result of high population increase in these countries.

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