​What will the global economy look like in 2050?

Below are excerpts from our latest annual Long Run Economic Outlook, a comprehensive analysis of how advanced and emerging economies will perform in the years to 2050. Access to the complete report, including extensive long-term forecasts, is available as part of a subscription to our CE Advance premium product or to our dedicated Long Run coverage. 

• The war in Ukraine has added to other shocks triggering a fracturing of the global economic system. This will reinforce some of the structural trends that were already set to weaken the long-term growth prospects of emerging markets (EMs), in particular. Although global GDP growth will bounce back after this year’s slowdown, it will settle at around 2.5%, below the average of 3.7% between 2000 and 2019. (See Chart 1.) 
• Output is back to pre-pandemic levels in all but the few countries shown in Chart 2. In the big picture, the pandemic has caused only minor lasting damage. Nonetheless, productivity in some EMs has been dented by the impact on the capital stock, while labour markets in some developed markets (DMs) have not recovered fully. Migration has rebounded; instead, the problem is lower participation. (See Chart 3.) This may yet be reversed if governments tackle problems such as the rise in long-term sick. 
• One long-term impact of the war will be to accelerate Russia’s shift towards isolation and hinder her catch-up. As for the West, the war has highlighted the threat of cyberattacks on critical infrastructure, although major economic ramifications would only be likely if an attack on the financial sector triggered a bank run.
• The war is also pushing the West to greater energy security. In the near term, this might delay progress towards climate ambitions, but ultimately it should accelerate the transition towards renewable energy. We are optimistic about the ability of technology and economic incentives to help reduce emissions.
• Our assumption for carbon dioxide emissions is consistent with the global average surface temperature rising to about 1.8°C above its pre-industrial level by 2050. (See Chart 4.) This would be between the IPCC’s low and intermediate scenarios and mean that global warming has little effect on our economic forecasts to 2050 for most countries.
• Demographics remain a more important driver of the long-term prospects of most economies, with Chart 5 showing those countries facing the biggest fall in their working age populations over the coming decades. A pick-up in productivity growth may help to mitigate the impact of a declining labour force in DMs. The recent release of artificial intelligence (AI) chatbots has highlighted the potential opportunities created by generative AI. But China and those countries aligned to it will suffer from reduced technology and investment flows between the US and China blocs.
• The monetary tightening being implemented should be sufficient to ensure that inflation comes back to its target. But inflation is unlikely to return to the below-target rates seen before the pandemic. (See Chart 6.) The structural factors that previously pushed it down, including globalisation and demographics, have eased or gone into reverse.
• And inflation could be more volatile than in recent decades. Global warming may cause more extreme weather events. And the China-led bloc has easier access to the raw materials needed for the green transition, which it might leverage for political means. (See Chart 7.) Assuming this volatility is biased to the upside, then inflation may average a little above target.
• Nominal interest rates have risen to the highest levels since 2008. But with equilibrium real interest rates still likely to be very low, they are likely to return to fairly low levels by historical standards once inflation falls. (See Chart 8.) 

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