Tapping into the BRIC and MINT countries is vital for inclusive prosperity. The challenge is to succeed as a trading nation, offering more affluent consumers in the emerging world the sophisticated, higher-value products they will increasingly desire. Brand UK is well-placed to prosper 

I have spent more than 30 years in business and economic forecasting. If this time has taught me anything, it is this: no matter how strong your views of the future, you can’t let one of them dominate your planning for the possible outcomes. So when it comes to Britain’s planning for the world in 2030, it is important to remain adaptable and not to put all your eggs in one basket. While it is right to have a clear view about where our strengths lie, it is dangerous to be too prescriptive. In recent years, various policymakers have declared export targets for particular sectors, often with the notion of doubling them by the end of 2020. While such an aspiration is understandable and admirable, the reality is that the biggest driver of any country’s exports is demand in the key markets. And clearly these conditions are not easily influenced.

The rise of the BRIC and MINT countries

Having made this comment on the uncertainties of the future, I do of course have quite a clear view of what the world might look like in 2030. It is one where China has reached the same size as the US economy (in US$ nominal terms). One in which India is on the verge of becoming one of the five largest economies in the world, and where the remaining BRIC nations of Brazil and Russia ‒ together with the MINT countries of Mexico, Indonesia, Nigeria and Turkey ‒ are all striving to be in the top 10 economies.  

After the Great Recession of 2008-09, many people assumed that these large emerging economies would continue to see their presence in the world economy rise, mainly thanks to the probable slow recovery of the so-called developed world. Today, such optimism in the emerging world is not so widespread. Concerns about their economies’ prospects have grown, against a backdrop of increased confidence in the US economy, improving hopes for Japan and tentative hopes that the worst fears for continental Europe will not materialise.

While it is unlikely that every major economy in the world can grow strongly at the same time, that does not mean that ongoing economic growth in the emerging world will prevent growth in developed countries. In this regard, a key issue for any trade-orientated country is its relative contribution to world growth. It is not commonly known, for example, that world GDP growth in the decade 2001-10 averaged 3.7%, despite the Great Recession and the earlier bursting of the global IT bubble in 2000-01, both in the same decade. This growth was higher than in the two previous decades 1981-90 and 1991-2000, in which it averaged around 3.3%, and was preceded by weaker growth in the 1970s. This was mainly explained by the rise of China (and to a lesser degree that of the other BRIC and large emerging economies) and despite the challenges facing many western economies.

Since 2011, I have assumed that for the current decade, world GDP growth will average an even stronger 4.1%. This is based on the continued rise of the BRIC and MINT economies, and the absence of crises on the scale of 2000-01 and 2008-09. Moreover, this assumption is predicated on an expectation that China will grow by less, specifically by around 7.5%. With it, the growth rate of the BRIC countries will be softer than in the last decade, even though their contribution will rise. At the end of 2013, China’s economy was around US$9.2 trillion in size, bigger than the combined size of the German, French and Italian economies, and about half that of the American one. From a global GDP perspective, China growing by 7.5% in 2014 is broadly equivalent to the US growing by 4%. So although China is “slowing,” it is contributing more to the world economy.

The changing Chinese and American economies

For the two decades up to 2030, my best guess is that China will grow by around 6.5%. This should be sufficient to take it towards $30 trillion in current 2013 US$, slightly bigger than the US. Crucially, this growth is likely to be different to the growth China has seen for most of the 1990-2010 period, fuelled less by exports and state investment and more by domestic consumption. For the rest of the world, providing what more affluent Chinese consumers want will become an increasingly important part of international business. So the winners and losers of this “new” China may well be different to the winners and losers of the old China. As I will discuss below, the UK could well be one of the winners, reaping the rewards of a China that is increasingly interested in value-added services and better-quality products rather than commodity-intensive and basic goods.

As China changes, so too does the US. We are already seeing signs of the US emerging as a somewhat different economy to that of before the Great Recession. The country will cease to be the world’s number one importer, especially of energy but also of other consumer products. Consequently, its companies will join the competitive battle to export to China and other rising emerging nations. In my judgement, the US will be able to grow at a rate in the vicinity of 2.0-2.5% between now and 2030.

On one simple model, what happens to the US and China will be the key driving force for the rest of the world. They will easily remain the dominant economies, accounting for at least a third of the global economy, with no other economy coming close to half their individual sizes. In such a simplified model, it is important to think of the US and China as gradually moving towards different sorts of economies to those familiar to many. The US becoming a bit more like the old China ‒ saving more and consuming less, with a smaller current account deficit. China becoming a bit more like the old US ‒ saving less and consuming more, with a smaller current account surplus.

Critical to the success of China and the US, and fundamental to the world as a whole, is the way in which the two countries handle relations with one another, as well as with everyone else. This transcends global peace and security, as well as international monetary and economic policy matters. One would imagine that the monetary system will gradually become less dependent on the US$ and that the role of the RMB will rise. In this context, the UK and its international financial role from London should be well-placed to benefit. Policymakers should certainly be prepared for this.

Other major economies

As for the other emerging economies, India has the best chance of becoming a global economic power. Due to historical ties and language, this could be particularly beneficial to the UK. At the time of writing, China’s economy is one-and-a-half times the size of the Brazilian, Indian and Russian economies combined, each of which is around US$2 trillion depending on their exchange rates. Yet, with its powerful demographics and scope for huge improvements in urbanisation, governance and productivity, India has a reasonable chance of achieving stronger GDP growth rates than China between now and 2030. The incoming Modi government has been given a platform by the electorate to force through much-required structural change and I think there are some grounds for excitement here. India has a reasonable chance of rediscovering economic growth of 7-8%, however the potential for even stronger growth should not be ruled out.

For Brazil and Russia, unless they can reduce their dependency on commodities and government spending, they might not return to the growth rates enjoyed in the last decade. Economic growth in the 2-3% vicinity, rather than the 5-6%, could well become a reality. As disappointing as these rates may be, they will likely be higher than those of Japan and continental Europe (given the poor demographics of these latter countries), and it is probable that their share of global GDP will continue to rise modestly.

Several other emerging economies, including most of the MINT countries and some parts of Africa, could continue to experience very strong (and potentially faster) growth rates, comparable to those of China and India.

By 2030, the world’s top 10 economies will come in a very different order. China will in all likelihood hold the number one spot, closely followed by the US. Japan and Germany are expected to stay in the top 10, whilst France and Italy could well slip down the rankings and will be fighting harder than ever to remain part of this elite. The UK has a chance of remaining in the top 10 ‒ given our favourable demographics ‒ but only if we can improve our productivity and remain adaptable. In addition to Brazil, India will almost definitely be included, and both are expected to see their ranks in the top 10 rise. Russia will be vying for a place in the top group, alongside Indonesia and Mexico.

UK and global trade patterns

In recent years, the UK has remained absorbed by its historical trade relationships with the US, while its position in the EU has become more fraught. I think it is quite plausible that relationships with Europe in general will become more difficult, not least because the EU will continue to see its share of the world economy and trade decline. While most of today’s generation of British leaders see their prime relationships as being those with the EU and its largest economies, this is likely to change. For example, China might replace France as Germany’s number one export market.  And for other strong European exporting nations, shifts in the same direction ‒ if not the same magnitude ‒ are likely. This will probably mean that the economic ties that bring so many continental economies together will be loosened, although the political and security ties should remain just as strong. How the EU adjusts in terms of its overall structure is difficult to predict and while it remains important for the UK to have good relations with Europe, the strength of our relationships with China, India and the rising emerging world will become increasingly significant.

I have often described London as the “BRIC capital of the world” in recent years. I occasionally wonder whether this is an early sign of what could happen to the UK if it succeeds more broadly as a trading nation, offering more affluent consumers in the emerging world the sophisticated, higher-value products they desire. Our time zone and our use of the English language give us an edge that virtually no other country has. If we can maintain high-quality finance and legal systems, Brand UK is well-placed to prosper in the world I envisage. 

At the start of this coalition government, our Chancellor made reference to the fact that we exported more to Ireland than the BRIC countries combined, in an attempt to justify our role in the Euro crisis bailout. Fortunately this is no longer the case – but there is more to do. By 2030, we will probably be more concerned about a major crisis in the BRIC and MINT world than the Euro zone. Whether we are or not will be the test of whether the UK economy has adjusted appropriately. If so, we will be doing rather well.

Jim O’Neill is an economist and former chairman of Goldman Sachs Asset Management

This is a contribution to Owning the Future: How Britain can Make it in a Fast-Changing World, edited by UK Shadow Business Secretary Chuka Umunna and published by Rowman and Littlefield International.