What might Australia’s economic status be in 2060?

Key Findings

Projections of economic activity through to 2060 for 48 countries that comprise approximately 80% of the world economy reveals that:

• by 2060 the global economy will be more than twice its current size.
• the relevance and economic clout of the world’s major multilateral economic organisations - particularly the G7 and the OECD - will be challenged by slower growth in traditional economic powerhouses and the continued growth of a number of emerging economies (e.g. India, Turkey, Indonesia).
• Australia’s relative size will remain constant through to 2050 (ranked 18th globally), but with the projection that in the next decade stronger growth will pull it through to 14th as previously larger countries experience slower economic growth.
• Australia’s GDP per capita, a proxy for living standards, will improve from a 12th place ranking in 2020? to 9th place place in 2060.

You might think ‘Who would want to be a long term economic forecaster, let alone a short term one?’

In some ways long term economic forecasting is simpler than short term forecasting as much of the noise of day-to-day volatility is smoothed out and the modeller can focus on the underlying structural factors that shape economic outcomes. In an Australian context, we often hear people refer to long term modelling built on the ‘three Ps’ - population, productivity and participation - as this framework underpins the long-term forecasts in the Commonwealth and state intergenerational reports.

In late 2021 the OECD provided forecasts through to 2060 for the 38 OECD countries and the additional 10 non-OECD countries that are in the G20 (see Table 1). This is certainly only a snapshot of the globe’s 195 or so countries, but, as the OECD noted, the included 48 countries account for more than 80% of total world output (measured at purchasing power parity).

While understandable that the OECD would be most interested in the economic profile of advanced economies, its modelling misses a number of potential growth-oriented countries, notably those in Africa (e.g. Nigeria), and Asia (e.g. Vietnam, Bangladesh, Philippines). Such countries have demographic profiles (i.e. young and growing populations) that suggest that they could have a place in the group of larger countries, particularly if they can avoid the ‘middle income trap’ and put in place institutions to support sustained growth.

It is also important to understand that the OECD’s long term modelling is conditional on a number of assumptions, including that:

• countries do not carry out institutional and policy reforms - it assumes no change to initial institutional and policy settings, except where already-legislated reforms will have a known impact on the policy indicators used in the model?
• every country is assumed to undertake, as of 2023, a gradual fiscal adjustment sufficient to eventually stabilise government debt as a share of gross domestic product (GDP) at its projected 2022 level.

The OECD modelling is presented in terms of each country’s projected GDP at 2015 purchasing power parity (PPP) which adjusts for price level differences across countries and provides a better measure of the volume of goods and services produced in each economy.

The global economy will more than double by 2060

As shown in Figure 1, the projection from? the OECD is that the ‘world’ - i.e. the 48 modelled economies - in 2060 will be more than double its 2020 size.

The OECD's forecast is underpinned by a series of assumptions, including:

• that the global economy will continue with broadly growth-friendly policies (i.e. including no sustained long-term retreat into protectionism)
• there will be no major global civilisation-threatening catastrophes.

It is also worth noting that the modelling was developed after the COVID-19’s initial shock, but did not capture the impact of Russia’s invasion of Ukraine.

The clout of existing global multilateral organisations will be challenged

Global organisations such as the G7, the OECD and the G20 provide the opportunity for countries to work together and coordinate?

Total GDP in the regional blocs shows a significant decline in significance of a number of the global institutions, particularly the G7 and the OECD (see each organisation's membership in Table 2). The G20 keeps its relative significance, but only really because of the growth of the ‘G20 emerging economies (i.e. Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, Turkey and South Africa) offsetting the projected relative collective slowing in growth in many of the other G20 countries (i.e. the G20 advanced economies).

Looking at the individual country changes (see Figure 2) explains the shifts in power within and between the organisations shown in Table 2.

Australia is projected to maintain, and maybe improve its global position by 2060

Figure 2 shows the changes in the ranking of the 48 modelled countries through to 2060 in purchasing power parity terms.

Figure 2 – Rank of countries by real GDP at constant 2015 purchasing power parities

What we see is not surprising given similar previous studies such as PwC’s World in 2050.

Broadly, we see the projections highlight the deceleration of large emerging market economies, and hence:

• there is a continued shift of activity to China and India as the two largest economies. The OECD notes that, in nominal terms India’s economy is projected to be larger than China’s by the early 2040s, in part because China’s population is projected to be falling by then. However, on a purchasing power? parity basis, as shown in Figure 2, China remains the single largest economy throughout to 2060
• growth opportunities of younger and growing populations (e.g. Turkey, Indonesia, India)
• the stagnation of the aging traditional European powers (e.g. Germany, France, Italy).

From an Australian perspective, Australia remains steady at 18th from 2010 to 2050, and then ticks up to 14th in the decade to 2060. This late growth spurt reflects the projection that we will be the fifth fastest growing economy between 2050 and 2060 with a relatively younger population than many of the previously larger economies.

What does this mean for Australian living standards?

GDP is a far from perfect measure of a country’s living standards. Amongst other things, it does not capture:

• changes to environmental outcomes (i.e. economic growth may be at the cost of the natural environment)
• the physical and mental health of the population
• how income is distributed in the community (i.e. between businesses and workers, and between people as a whole), and so on.??

These limitations acknowledged, GDP measured in per capita terms and standardised for purchasing power nevertheless provides a workable proxy for living standards for cross-country comparison purposes.

Looking at the per capita GDP country rankings in Figure 3 we see that:

• Australia’s GDP per capita is projected to improve from its current 12th place ranking to 9th place in 2060
• the large population growth that supported the absolute growth of larger countries (e.g. India, Indonesia, Turkey, etc) did not necessarily see across the board growth in per capita results
• real GDP per capita growth is projected to slow in most of the G20 emerging-market economies, except those where recent performance has been relatively weak (including Argentina, Brazil and South Africa).

Figure 3 – Rank of countries by real GDP per capita (constant 2015 purchasing power parities)