Behold the new economic super-cycle | FT Alphaville

Behold the new economic super-cycle

Remember the economic super-cycle?

Well, it never really went away. At least not according to Standard Chartered, which has just published a huge report on the world economy and the decades of strong growth that lie ahead.

Emphasis ours:

The third super-cycle started – in our view – in 2000. The period between the second and third super-cycles, from the early 1970s to 2000, was characterised by ongoing economic challenges in the West, a slowdown in Japan, the collapse of the Soviet Union, debt and currency crises in Latin America, and the relatively small size of China and India, both of which were in the early stages of opening up. There was no dynamic driver for the world economy.

In 2000 the world economy was USD 32trn in size. Now, following the global recession and financial crisis, the world economy is almost twice the size of a decade ago. There was a significant contraction as a result of the crisis and global recession, but now the world is back to its pre-recession peak. Next year, based on conservative growth assumptions, this could rise to USD 64.7trn. Global trade has also recovered to pre-recession levels.

Economist Gerard Lyons believes the industrialisation and urbanisation of emerging markets will see the global economy double in size by 2030.

By 2030 – the time period for this analysis – we believe that the global economy will have grown significantly further, reaching:

A size of USD 308trn. This would be the actual size of the world economy – in nominal terms – based on our growth and inflation forecasts. To allow further comparison with today, one could adjust for inflation, and for currency shifts.

Keeping prices and currencies the same as now, the increase in the size of the world economy would be to USD 129trn by 2030. This is still impressive.

— If we allow for the likelihood that the Chinese yuan (CNY) and Indian rupee (INR), amongst the major emerging currencies, are likely to appreciate versus the dollar, then a further adjustment to reflect more credible currency moves suggests that the world economy would grow to USD 143trn. Note that this still keeps exchange rates steady both within and across most emerging regions, and only really reflects appreciation of a handful of currencies of large emerging economies. By 2030 we assume the CNY will have appreciated from 6.64 this year to 4.39, and the INR from 45.5 this year to 35 in 2030.

And these aren’t the only big numbers in the publication. Lyons reckons China will grow an average of 6.9 per cent per annual over the next 20 years and India by 9.3 per cent:

By 2030, income per head in China – using market exchange rates, which include our view of a stronger CNY – could have risen from USD 4,166 in 2010 to USD 21,420. China, currently a big but poor economy, would become a middle-income economy – but on a vastly larger scale. This would be similar to the transformation seen by, say South Korea, over the last 50 years, as it transformed from a country with incomes on a par with many African economies to its present status as the world’s 15th-biggest economy. Income changes elsewhere are no less impressive. India, for instance, is projected to go from USD 1,164 in 2010 to USD 7,380 by 2030, Latin America from USD 7,114 to USD 14,608, and Sub-Saharan Africa from USD 1,075 to USD 2,780.


Does the planet really have the resources to enable this growth?

Lyons isn’t worried:

The environment has the ability to play many roles within the third global super-cycle. There is an environmental consequence of the super-cycle, in terms of increased demand for resources. This could yet act as a constraint on future growth. But at the same time it could play a positive role. One way is through increased investment in commodity-producing regions of the world, especially Africa. Another is that increased commodity demand and environmental concerns will not only prompt higher commodity prices, but will also lead to increased technological innovation.

We have looked at these issues before, in terms of water and of food. But climate change will lead to greater pressure on food, energy and water resources. In turn, this will lead to price, quantity and technology solutions. The prices of commodities may rise. Their output may be limited as more countries see resources from a strategic perspective, but there is also likely to be increased innovation, resulting in positive advances.

And there you have it. The economic super-cycle has started and it will continue for another 30 years.

Bubble. Who said bubble?

More in the usual place.

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