China is now expected to surpass the US economy when measured in dollars by 2028 – half a decade sooner than it forecast a year ago
China will overtake the US as the world’s largest economy before 2030 while India will again replace the UK as the fifth largest in 2025 and race to the third spot by 2030, several years earlier than previously estimated, a global think-tank said on Saturday.
The UK-based Centre for Economics and Business Research (CEBR) said China, which already had overtaken the US in terms of purchasing power parity (PPP), is now expected to surpass the US economy when measured in dollars by 2028 – half a decade sooner than it forecast a year ago – after outperforming its rival during the global Covid-19 pandemic.
China’s nominal GDP (gross domestic product) in current dollars is $14.34 trillion while its PPP adjusted GDP is $23.52 trillion as against the US GDP of $21.43 both nominal and PPP in 2019. India’s nominal GDP is $2.87 billion and in terms of PPP is $9.56 billion as of 2019.
The World Bank projected that China’s GDP growth will return to its pre-pandemic level by 2021, to accelerate to 7.9 percent next year from 2.0 per cent in 2020, in response to improved consumer and business confidence and better labor market conditions.
The International Monetary Fund has said the Indian economy would contract by a massive 10.3 per cent this year, but is likely to bounce back from the Covid-19 induced recession with an impressive 8.8 per cent growth rate in 2021, thus regaining the position of the fastest growing emerging economy, surpassing China’s projected growth rate of 8.2 per cent.
India, which had overtaken the UK as the fifth largest economy in the world in 2019, has been knocked off course somewhat through the impact of the pandemic. As a result, the UK overtakes India again in this year’s forecasts and stays ahead till 2024 before India takes over again, the CEBR) said in its annual report.
The CEBR forecasts that the Indian economy will expand by 9.0 per cent in 2021 and by 7.0 per cent in 2022. “Growth will naturally slow as India becomes more economically developed, with the annual GDP growth expected to sink to 5.8 per cent in 2035.” “This growth trajectory will see India become the world’s third largest economy by 2030, overtaking the UK in 2025, Germany in 2027 and Japan in 2030,” it said.
“In the medium to long term, reforms such as the 2016 demonetisation and more recently the controversial efforts to liberalise the agricultural sector can deliver economic benefits,” the think tank said. However, with the majority of the Indian workforce employed in the agricultural sector, the reform process requires a delicate and gradual approach that balances the need for longer-term efficiency gains with the need to support incomes in the short-term.
India’s stimulus spending in response to the Covid-19 crisis has been significantly more restrained than most other large economies, although the debt to GDP ratio did rise to 89 per cent in 2020.
In its annual league table of the growth prospects of 193 countries, the CEBR said China had bounced back quickly from the effects of Covid-19 and would grow by 2.0 per cent in 2020, as the one major global economy to expand.
With the US expected to contract by 5.0 per cent this year, China will narrow the gap with its biggest rival, the CEBR said. Overall, global gross domestic product is forecast to decline by 4.4 per cent this year, in the biggest one-year plummet since the second World War.
“The big news in this forecast is the speed of growth of the Chinese economy. We expect it to become an upper-income economy during the current five-year plan period (2020-25). And we expect it to overtake the US a full five years earlier than we did a year ago,” said Douglas McWilliams, the CEBR’s deputy chairman.