Johansson Åsa – Senior Economist, Structural Policy Analysis Division, Economics Department, OECD, 2, rue André Pascal, 75775 Paris Cedex 16, France; E-mail: asa.johansson@oecd.org

Guillemette Yvan - Senior Economist Macroeconomic Policy Division, Economics Department OECD, 2, rue André Pascal, 75775 Paris Cedex 16, France; E-mail: yvan.guillemette@oecd.org

Murtin Fabrice -Economist, Household Statistics and Progress Measurement Division, Statistics Directorate, OECD, 2, rue André Pascal, 75775 Paris Cedex 16, France; E-mail:fabric.murtin@oecd.org

Turner David - Head of Division, Macroeconomic Analysis Division, Economics Department, OECD, 2, rue André Pascal, 75775 Paris Cedex 16, France; E-mail: david.turner@oecd.org

Nicoletti Giuseppe - Head of Structural Policy Analysis Division, Economics Department, OECD, 2, rue André Pascal, 75775 Paris Cedex 16, France; E-mail: Giuseppe.nicoletti@oecd.org.

de la Maisonneuve Christine – Statistician, Structural Policy Analysis Division, Economics Department, OECD, 2, rue André Pascal, 75775 Paris Cedex 16, France; E-mail: christine.maisonneuve@oecd.org.

Bousquet Guillaume -Statistician, Macroeconomic Analysis Division, Economics Department, OECD, 2, rue André Pascal, 75775 Paris Cedex 16, France; E-mail: Guillaume.Bousquet@oecd.org

Spinelli Francesca - Statistician, Trade in Services Division, Trade and Agriculture Directorate, OECD, 2, rue André Pascal, 75775 Paris Cedex 16, France; E-mail: Francesca.spinelli@oecd.org

Abstract

This report presents the results from a new model for projecting growth of OECD and major non-OECD economies over the next 50 years as well as imbalances that arise. A baseline scenario assuming gradual structural reform and fiscal consolidation to stabilise government-debt-to GDP ratios is compared with variant scenarios assuming more ambitious policies. This report sketches the possible transition from the current conjuncture to growth developments in OECD and non-OECD G20 countries up to 2060 focusing on the interaction between technological progress, demographic change, fiscal adjustment, global imbalances and structural policies. Several policy defining findings are highlighted.

Once the legacy of the global financial crisis has been overcome, global GDP could grow approximately at 3% per year over the next 50 years. Growth will be enabled by continued fiscal and structural reforms and sustained by the rising share of relatively fast-growing emerging countries in global output. Growth of the non-OECD will continue to outpace the OECD, but the difference will narrow over coming decades. From over 7% per year over the last decade, non-OECD growth will decline to around 5% in the 2020s and to about half that by the 2050s, whereas trend growth for the OECD will be around on average 1¾ to 2¼% per year. The next 50 years will see major changes in the relative size of world economies. Fast growth in China and India will make their combined GDP measured at 2005 Purchasing Power Parities (PPPs), soon surpass that of the G7 economies and exceed that of the entire current OECD membership by 2060. Notwithstanding fast growth in low-income and emerging countries, large cross-country differences in living standards will persist in 2060. Income per capita in the poorest economies will more than quadruple by 2060, and China and India will experience more than a seven-fold increase, but living standards in these countries and some other emerging countries will still only be one-quarter to 60% of the level in the leading countries in 2060. In the absence of more ambitious policy changes, rising imbalances could undermine the growth. As the current cycle unwinds, the scale of global current account imbalances may increase and return to pre-crisis peaks by 2030. Government indebtedness among many OECD countries will exceed thresholds at which there is evidence of adverse effects on interest rates and growth. Global interest rates may therefore start to rise over the long-term. Bolder structural reforms and more ambitious fiscal policy could raise long-run living standards by an average of 16% relative to the baseline scenario of moderate policy improvements. Ambitious product market reforms, which raise productivity growth, could increase global GDP by an average of about 10%. Policies that induce convergence towards best practice labour force participation could increase GDP by close to 6% on average.