Photo: fdecomite on Flickr
Get ready.Citi’s crack economists Willem Buiter and Ebrahim Rabhari are back at it with a massive note that predicts truly transformational change in the global economy over the next 40 years.
Here’s just a tidbit:
Although fast growth in world trade is not new, we do not expect more of the same this time. Rather, the change we expect over the next 40 years will be little short of transformational. What is new, at least since the industrial revolution of the late eighteenth century, is the prominence of today’s emerging market economies (EMs) in world trade. Emerging Asia is set to overtake Western Europe to become the world’s largest trading region by 2015. We expect China, already the world’s largest exporter in 2010, to be the world’s largest trading nation by 2015, overtaking the US. We expect Emerging Asia to become the largest region by trade in 2025, even though its share of world trade was only about half the level of Western Europe — the largest trading region today — in 2010. And India, currently not even on the list of the 10 largest nations by trade, will overtake the US and Germany to become the world’s second largest country by trade in 2050. We also expect Africa, a continent mainly notable for its absence in the first two waves of globalisation, to more than double its share of world trade from 3% in 2010 to 7% in 2050. EMs will rise in significance as both exporters and importers. Thus, intra-EM trade, which rose from only 6% of world trade in 2000 to 15% in 2010, is set to account for 27% of world trade in 2030 and 38% in 2050.
The world is rapidly becoming an easier place to trade in, and the old dynamics that have governed economic relations for more than 100 years are changing.
This transformation has already begun, and it's just going to continue.
Trade in goods as a percentage of global GDP only amounted to 39% of GDP in 1990. In 2010 trade accounted for 61% of GDP.
Emerging Asia and China are fast becoming important importers of goods from both advanced economies and other emerging markets.
That's raising their prestige as trading hubs.
Traditional borders fade in the production process. Goods often pass through multiple borders in the production process.
Western Europe and the U.S. will remain regional trading centres, but China is stealing the spotlight from Japan in Asia and Brazil is slowly gaining popularity.
The development of infrastructure -- both in transit and in infrastructure services (like telecom) -- will help determine which cities and countries become trade hubs. Emerging markets lag in this respect.
As technology increases, so will the amount of manufacturing and the level of services that can be performed within emerging markets. The emphasis of trade will switch to services.
Goods are already crossing borders multiple times during production, and Buiter and Rabhari see this trend intensifying with more countries specializing at later stages of the production process.
- Their projections depend upon GDP growth and productivity catch-up. If these don't increase, then world trade forecasts won't match up.
- New barriers to trade like increased protectionism or refusal to continue negotiations towards free trade would temper global growth.