In 2050, the world’s five largest economies will be China, the US, India, Indonesia, and Germany. Indonesia is expected to replace Brazil and Russia among the list of largest emerging markets over this time frame. China will surpass the US as the world’s largest economy around 2035.
Over the past few decades, a significant theme has been the remarkable growth of China and India. During the period from 2000 to 2022, India climbed eight spots, securing the position as the fifth-largest economy, surpassing the UK and France.
The Largest Economies by 2050 – Power Shifting to Asia
According to Goldman Sachs, by 2050, the weight of global GDP will shift even more towards Asia. This shift is attributed not only to Asia outperforming previous forecasts but also to the underperformance of BRICS nations.
One notable development is that Indonesia is projected to become the fourth-largest economy by 2050, surpassing Brazil and Russia to become the largest emerging market. Being the world’s largest archipelagic state, Indonesia currently has the fourth-largest population, boasting 277 million people.
Projections Imply that China, the US, India, Indonesia, and Germany Will be the World’s Five Largest Economies in 2050.
In projecting the future growth of global capital markets, Goldman Sachs primarily utilizes equity market capitalization as a representative measure of capital-market-related activity. The analysis builds upon earlier long-term projections of equity market capitalization for the BRICs (published in 2004) and emerging market economies.
To estimate future equity market capitalization based on the long-term GDP projections, GS leverage the correlation between equity market capitalization-to-GDP ratios and GDP per capita levels. Below Chart illustrates how this relationship has evolved for 68 markets on a decade-by-decade basis since the 1980s.Over time, this correlation has strengthened, supporting the assumptions for forecasting.
Capital Market Size and Opportunity: Growing Importance of Emerging Markets, With High Potential in India
To project global market capitalization, we combine country-level GDP and GDP per capita projections with our estimates of the relationship between GDP per capita and equity market capitalization (EMC) ratios.
Given the positive correlation between equity market capitalization ratios and GDP per capita levels, we anticipate that equity assets will grow more rapidly than GDP as emerging market (EM) income levels rise. This growth will be partly driven by multiple expansion as risk premia decline, but the primary dynamic will be the equitization of corporate assets, the deepening of capital markets, and the disintermediation that accompanies financial development. New issuances and privatisations are also expected to play a significant role in this process.
Below graph outlines our global market capitalization projections of largest economies. As market capitalization grows faster relative to GDP, the significance of EM equity is likely to increase significantly, albeit from relatively low levels. In 2022, EMs represented around 27% of total global market cap but accounted for around 45% of global GDP (measured in US$). Over the projection period, we anticipate that EMs’ share of global market cap will rise to 35% by 2030 (50% for GDP), to 47% by 2050 (60% for GDP), and to 55% by 2075 (68% for GDP). This reflects the growing importance of EMs in the global economy and their potential to shape the future of capital markets.
Taking a more detailed look, the relative share of the US in global equity market capitalization is expected to decline from 42% in 2022 to 35% in 2030, further down to 27% in 2050, and ultimately reaching 22% in 2075. Conversely, China’s share in global market capitalization is projected to rise from 10% to 15% by 2050 but is anticipated to decline to around 13.5% by 2075.
The most significant potential for an increase in global market capitalization share is seen in India, where our projections indicate that India’s share will climb from around 2.5-3% in 2022 to 8% in 2050 and further to 12% in 2075. Similarly, the rest of the emerging markets’ (EMs) share is projected to rise from 13.5% in 2022 to 17% in 2030, 24% in 2050, and 30% in 2075. These projections imply that this growth will come at the expense of declining shares for developed economies (DM).
In our analysis, we also examine the relative shifts within the categories of developed markets (DM) and emerging markets (EM). Within DM, a significant relative shift is expected for the US, which is projected to decline from 60% but maintain a relatively high share of around 50%. On the other hand, both Japan and the Euro area are anticipated to decline at the expense of other DM economies, such as Canada and Australia, among others, reflecting faster potential growth in the latter.
In the case of EMs, the most substantial change is foreseen between the two largest EM economies, China and India. While we expect EM Asia (excluding China and India) to hover around 20%, CEEMEA (Central and Eastern Europe, Middle East, and Africa) at around 25-30%, and LatAm (Latin America) at around 5-7% throughout the forecast horizon, we project China’s relative share of EM to decline from 40% in 2022 to 30% in 2050. In contrast, India’s share is projected to rise from 12% in 2022 to 17% in 2050. This relative shift from China to India is driven by two factors: India’s stronger demographic outlook and a more rapid pace of GDP per capita growth, starting from lower levels.