The Eurozone will be the Fourth Largest Economy in the World in 2075

In 50 years, the Eurozone, measured as a single economy, will be the fourth largest in the world. Germany, individually, will drop from the current fourth place in the world to fifth in 2050 and ninth in 2075. China, the United States and India will be clearly ahead of everyone else. Although only two more Europe countries will be among the leading 15 economies - Great Britain (10) and France (15), at that time they (together with the USA, Germany and Japan) will remain incomparably richer in terms of GDP per capita.

This is stated in an extremely long-term forecast of the American investment bank "Goldman Sachs", covering 104 countries of the world and also including expectations for the development of the capital markets. For its creation, a model was used, in which factors such as population, labor, technology, availability of capital, etc. were taken into account.

"Openness to trade and capital flows is a necessary condition for the successful development of capital markets. Of the many risks to our forecasts, we consider the most significant possibility that populist nationalism will lead to increased protectionism and a retreat from globalization," said the bank's capital markets forecast released this month. The leading and overarching risk remains the effects of climate change.

The authors outline several trends:

Slower global potential growth driven by weaker population growth. Global economic growth will average just under 3% per year over the next ten years and will gradually decline further, mainly reflecting slower labor force growth. The rate of world population growth has halved over the past 50 years: from 2% per year to less than 1%, and is expected to drop to near zero by 2075.

The convergence of the world's economies remains steady, led by the strong centers in Asia. Although real GDP growth has slowed in both advanced and emerging economies, in relative terms the growth of the latter group continues to outpace that of the former. By 2075, with the right policies and institutions in place, Nigeria, Pakistan and Egypt have a chance to be among the largest economies in the world.

The decade of US exceptionalism is unlikely to be repeated The relative performance of the US has been stronger than expected over the past decade. However, history shows that this is unlikely to happen again in the next decade. Potential US growth remains well below that of major emerging economies and we expect some of the extraordinary strength of the US dollar in recent years to wane over the next 10 years.

Less global inequality, more local inequality. Twenty years of catch-up by emerging economies has led to a more even distribution of global income. However, while income inequality between countries has decreased, income inequality within countries has increased. This represents a major challenge for the future of globalization.

Key long-term risks: Protectionism and climate change. The future is uncertain, and especially the long-term future. Of the many risks, two are particularly important to global growth and income convergence.

First, the risk that populist nationalism will lead to increased protectionism and a reversal of globalization. Populist nationalists have taken power in several countries and disruptions to supply chains during the Covid pandemic have led to an increased focus on their supply resilience and localization. Globalization is a powerful force for reducing income inequality between countries, but to ensure this effect, greater efforts must be made to share its benefits more evenly within countries. Second, the risk of environmental catastrophe associated with climate change. Goldman Sachs rejects the idea that economic growth and environmental sustainability are incompatible - many countries have succeeded in "decoupling" economic growth from carbon emissions, so there is no practical reason why this cannot be achieved for the global economy as a whole. But achieving sustainable growth requires economic sacrifice and a globally coordinated response, both of which will be politically difficult to achieve.

In forecasting the future growth of global capital markets, the focus is on equity market capitalization. Growth companies' share of global capital market capitalization will grow from around 27% currently to 35% in 2030, 47% in 2050 and 55% in 2075.

India is expected to see the largest increase in global market share - from just under 3% in 2022 to 8% in 2050 and 12% in 2075 - reflecting favorable demographics and rapid GDP per capita growth.

China's share will rise from 10% to 15% by 2050, but, reflecting a demographic slowdown in potential growth, will then decline to around 13% by 2075.

The growing importance of capital markets outside the US suggests that the US share is expected to fall from 42% in 2022 to 27% in 2050 and 22% in 2075.

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