Given the recent trend in their economic growth, the two fastest-growing economies will soon become the biggest
The combined economic output of China and India will exceedthat of the entire Organization for Economic Cooperation and Development (OECD)bloc by 2060, the group said in a report published on Friday.
China, currently the world’s second-biggest economy, isforecast to grow at an average pace of 6.6 percent from now till 2030, and 2.3percent from 2030 to 2060. The projections for India, the 10th largest, are 6.7percent and 4 percent, respectively, the OECD said.
In comparison, the 34 OECD nations are projected to grow anaverage of 2.3 percent per year from now till 2030 and 1.7 percent from 2030 to2060.
“The faster growth rates of China and India imply that theircombined GDP (gross domestic product) will exceed that of the major seven (G7)OECD economies by around 2025,” the group said in the report. “Strikingly, thecombined GDP of these two countries will be larger than that of the entire OECDarea, based on today’s membership, in 2060, while it currently amounts to onlyone-third of it.”
Because of this faster economic growth, the two Asian giantswill see their per capita income increase more than seven-fold, providing a biglift for the living standards of the average Chinese and Indian, the blocadded. This will be more pronounced in China because of the strong productivitygrowth and high capital investment compared to India, it added.
Education key to higher living standards:
However, it warned that despite this fast growth amongcountries that are “catching up,” the living standards of the average Chineseand Indian will still be low, about only “one quarter to 60 percent of thelevel in the leading countries in 2060.”
“In particular, large differences in average education willpersist in the long term. Such averages reflect education levels across thewhole adult population and evolve slowly over time so these (education) gapswith advanced economies close more slowly than productivity gaps,” the OECDsaid.
What the governments of these countries need to do is investin education, which could be “an important policy lever for achieving a fastercatch-up in living standards among developing countries,” the OECD said. Thiswill lift the number of people who can contribute productively to the economy,the group said.
“The OECD analysis identifies education reforms as among thehighest priorities for structural reform in Brazil, China, India and Indonesia,”the group said.
Global growth to slow:
Besides investing in education and training, China and Indiacould also implement other policies to try to lift their longer-term economicoutlook, according to the OECD. They can speed up financial sector reforms,raise retirement ages so that people work longer, spend more on socialprotection including health care and pension, and provide greater access toprivate business credit.
Reforms are also necessary in the OECD bloc of nations ifthey want to boost their growth, which has been hurt by the effects of theglobal financial crisis. Like China and India, they may also need to raiseretirement ages. On top of that, they will need to slash deficits and invest intechnology to increase productivity, the OECD said.
These policies, both in OECD countries and non-memberdeveloping nations such as China and India, may help lift global GDP, which isexpected to expand at around 2.9 percent per year over the next 50 years,slower than the 3.5 percent average annual pace seen over the past 16 years,from 1995 to 2011.
This slowdown is mainly due to the after-effects of the 2008financial crisis such as high unemployment, excess industrial capacity andlarge fiscal deficits. Demographic changes such as aging in OECD economies willalso weigh on growth.
“The global economy currently faces serious challenges andpolicy action is needed to restore confidence and put the economic recoveryonto a sustainable growth path,” the OECD said. “Altogether these reforms couldboost annual global GDP growth on average by 0.3 percentage points over thenext 50 years.”
