PERILS OF LONG-TERM ECONOMIC FORECASTS: THEY ARE STATIC, UNABLE TO ANTICIPATE TRENDS THAT WILL DISRUPT THEM
Luckily for Economists, Nobody Remembers Long-term Trends after 20 Years… Well, Almost Nobody
Back in 1994, The Economist and the World Bank issued a 25-year forecast for the world’s leading economies. This led to a special report, “Indo-China” to Gain Power in Next Quarter Century? Europeans to End Up Biggest Losers? Re-fusion of Arts & Sciences Should Help
Who Will Be the Next China and India?
The report became a seminal milestones for some of the longest-lasting trends in the world and the IT industry. Perhaps its most important prediction was that there is going to be a re-fusion of arts and sciences, returning Man back to Da Vinci’s renaissance era.
That, of course, had nothing to do whatsoever with the Economist/World Bank 1994 forecast of winners and losers over the next 25 years. Except to point out the deficiencies and inadequacies of long-term predictions that do not take into account new trends that may shape and change the world.
So a dull and ultimately wrong forecast inspired an enlightened one.
The second problem with long-term forecasts is that nobody remembers them by the time they are supposed to come true. Lucky for those who were wrong. Rescued by the oblivion. Except we won’t let them, will we, get off so easy? Which is why I thought I’d start the analysis of the latest Economist long-term forecast by checking to see how they did with their 1994 effort.
Flawed Forecast 21 Years Ago
And I am afraid, perhaps unsurprisingly, not so good. Take a look at this chart. It was part of my Nov 1994 report “End of Western Dominance?”
The blue and yellow bars, which I added today, show what actually happened. The red bars, of course, represent the 1994 forecast. The U.S. economy, in the above chart, is depicted as a base/reference point, and thus shown as zero.
Furthermore, China’s growth has slowed considerably in the last few years (right), while India’s is coming on strong (left).
Latest Economist’s Forecast Is Already Obsolete
China Has Already Surpassed the U.S. as World’s Largest Economy in Terms of Purchasing Power
Fast-forwarding now to the latest Economist long-term forecast, released today, China will supposedly surpass the U.S. as the world’s largest economy by 2026.
And India won’t be far behind. Indonesia and Mexico are expected to be two other rising stars if the current globalist world unfolds according to plan.
Alas, that never happens. There are always unforeseen disruptions… political as well as technological that end up being flies in the ointment of economists’ forecasts. So feel free to ignore the latest Economist forecast. Those who did likewise back in 1994 would have done better than those who followed them.
BRIC by BRIC
Perhaps the biggest new factor at the moment is BRICS – an economic and political alliance of Brazil, Russia, India, China and South Africa which is already challenging the U.S. global political and economic domination.
But when you consider the top countries by their purchasing power (right chart), you will see that 4 of the top 7 are BRICS. In other words, the majority.
And you will also note that China has ALREADY SURPASSED the U.S. in this category as the world’s No. 1 economy, with India, another BRICS country, in the third place, right behind the U.S., but ahead of Japan and Germany.
In other words, the American global leadership is already crumbling.
As for the real GDP growth, only India, China and the Philippines, are among the top 20 countries in the world. The rest are all smaller African or Asian economies (left chart). No western country is even among the top 30.
Nearly 21 years ago, my long-term forecast was titled “End of Western Dominance?” Now that that has come to pass, the question for the next two decades will be who will be the next China and India?
Guess that chart should give us an idea where the multinationals are now putting their money hoping for growth which is eluding them in the developed world, and the former developing stars.
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A new report from The Economist Intelligence Unit examines some of the big economic issues that will shape global business around the world in the coming decades. Read the full report for more.
BRIC by BRIC
In the 1990s, when the term BRIC first became ubiquitous during the post-Cold War expansion of the West into places like China, India, Brazil, and to a lesser extent even into Russia, those nations were regarded by Wall Street investors as “developing countries.” No more. Now that they have built up financial muscle of their own, these countries are also seeking greater political influence in the world.