A new study by the Deutsche Bank Group holds good news for the United States, with the latest forecasts showing that America will continue as the key driver of the global economy, its currency will remain the most trusted, and its demographics will be the envy of the world. But for Europe, the prognosis is not so promising, explains the president of Deutsche Bank France in this op-ed from French newspaper LeFigaro.
By Jacques-Henri David*
August 25, 2005
What will the world’s economy look like in 2020? What will the power relationships be amongst the United States, the European countries, China and India? Where will the largest areas of growth be? These questions call to us today, as society engages in a vast debate on globalization and its consequences.
I would like to add my contribution to this discussion, beginning with the results of a recent study by the Deutsche Bank Group, which analyzes the macroeconomic evolution of the major continents over the next fifteen years.
Combining the theories of growth and analyzing the evolution of development in the 34 principal countries in the world, this study apprehends the principal factors affecting growth and the trends at work today. It draws up a probability chart of the economic situation for the world in 2020, and the results of these projections are fascinating.
In 2020, the United States will remain the world superpower, with a total GNP of approximately $17 trillion to $18 trillion. Thanks to its dynamic demographics (1% annual population growth), a productivity and a competitiveness amongst the best in the world (currently second in the world and far out in front of Germany (13th) or France (26th) according to statistics from the World Economic Forum), and thanks also to its constant drive to create and innovate, and with flexibility due to the mobility of its labor force, the United States will maintain a clear advantage over China and India and will widen the gap with Europe. With average per capita salaries of approximately $55,000, the income of the average American in 2020 will be 1.5 to 2 times greater than that of a European; five times higher than that of a Chinese and nine times more than that of an Indian (approximately $6,000 per capita).
China will indisputably be the world’s second greatest economic power, with a GNP of some $14 trillion, or three times higher than today.
That of course assumes that beyond the inevitable short-term risks, no major social crisis interrupts the long-term dynamics: a progressive opening to the outside, an increase in domestic consumption, strong growth - in particular in foreign investment, and the rapid improvement in the qualifications of China’s working population (China already has the same number of engineers and technicians as the West, and more than any of the large European countries). Even more than today, China in 2020 will be the industrial workshop of the world.
Paradoxically, one of its handicaps will be an aging population, due to the delayed impact of its "one child policy." By 2020, the median age in China will be approximately 40 years, which will be higher than in the United States.
The world’s third greatest economic power will be India, but far behind the first two, with a GNP of about $7 trillion.
India should be the uncontested champion in terms of growth, due its demographics, its highly qualified labor force, the ease with which it can be integrated into the global economic system thanks to the wide use of English throughout its population, and thanks also to its mastery of communications technologies, especially the Internet. If China can be held out as the world’s future industrial workshop, India will undoubtedly be one of the great service societies.
In Europe, Germany, France, along with Italy and the United Kingdom, should lose ground in the world competition with a GNP per country of about $2 to 2.5 trillion.
While European countries will remain rich in terms of per capita income (about $32,500), their relative weight will decline with their demographics and weaker growth (on average, almost half as much as the United States). Countries like Spain or Ireland will experience a higher level of development than the European average, thanks to a wider opening of their economies to the outside, the dynamism of their investments, good population growth forecasts and effective immigration policies.
Ireland, for example, in 2020 will have the second highest GNP per capita in the world, just behind the U.S. The increased weight of these new stars on the European landscape will not, however, be sufficient to compensate for the retreat of its historic champions [Britain, France, Germany] who will feel the full weight of their society’s declining demographics [aging populations].
This report must not find us indifferent, and it suggests a certain number of remarks. It is also a call to action. There is, first of all, some good news: the resilience and performance of the United States. Indeed, a major concern about economic and financial conditions today are ballooning American deficits and fear that the monetary system will implode as the fall of the dollar accelerates, which would lead to a grave global crises.
Actually, because the United States will remain the world’s superpower for the next two decades, the dollar still has some beautiful days ahead of it, remaining the key international reserve currency, so American budget deficits should remain under control, can be financed, which should avert a major international crisis.
Another conclusion: the European countries must, without delay, reconstruct their political project to find the real dynamics of integration. Without that, individually, we will all be relegated to third class. We must do everything to reverse current tendencies by mobilizing our assets: our infrastructure, our capacity to undertake research and development, our "rules of law," the depth and effectiveness of our financial markets, and the importance of saving levels ... We must develop all of these elements to the maximum in order to compensate for our handicaps: stagnant demographics and a lack of flexibility in our social structures.
To take only one example in regard to future technologies: In France we have a perfect command of nuclear power. Nuclear power being the oil of tomorrow, it is a considerable advantage. Many other fields have the same logic: biotechnology, technologies of communication and knowledge, pharmacy, health, etc. We must completely mobilize ourselves to these issues, starting with the project of European integration.
Whatever the hazards of the now-broken process for approving the European Constitution, nothing prevents our governments from promoting practical projects, combining political goodwill and budgetary efficiency. In this way we can recapture the dynamism of the European political project that is now so lacking.
Finally, I dare say that to overcome Europe’s demographic shortcomings in the years to come, it will be necessary for us to lay down and implement a more finely-tuned immigration policy. In spite of the sensitivity of the subject, we shouldn’t underestimate the determinative role that the population structure will have in the future, in particular the average age and qualifications within society and on growth around the world. This is one of the great challenges that Europe must rise to.
*President of the Deutsche Bank Group in France.
So, the gloom and doomers are wrong?
This is not surprising. I forget exactly but the USA has more dollars circulating around the world than it has inisde the USA. Inspite of what the critics charge, that the USA uses 1/4 of world's energy, the USA is also probably responsible for 1/3 or the world's economic activity. As the old saying goes, "when the USA sneezes, Europe catches a cold." The USA dollar is the standard currency in Panama.