Markets
Visualizing the Future Global Economy by GDP in 2050
Visualizing the Future Global Economy by GDP in 2050
According to a recent report from Goldman Sachs, the balance of global economic power is projected to shift dramatically in the coming decades.
More specifically, analysts believe that Asia could soon become the largest regional contributor to world GDP, surpassing the traditional economic powerhouses grouped together in the Developed Markets (DM) category.
In the graphic above, we’ve visualized Goldman Sachs’ real GDP forecasts for the year 2050 using a voronoi diagram.
Data and Highlights
The following table includes a regional breakdown of expected real GDP in 2050. All figures are based on 2021 USD.
| Region | Real GDP In 2050 (USD trillions) | % of Total |
|---|---|---|
| Asia (ex DM) | $90.6 | 40% |
| Developed Markets (DM) | $82.9 | 36% |
| Central & Eastern Europe, Middle East and Africa | $38.3 | 17% |
| Latin America | $16.0 | 7% |
| World Total (Figures rounded) | $227.9 | 100% |
Based on these projections, Asia (ex DM) will represent 40% of global GDP, slightly ahead of Developed Markets’ expected share of 36%. This would mark a massive shift from 50 years ago (2000), when DMs represented over 77% of global GDP.
Asia
Focusing on Asia, China and India will account for the majority of the region’s expected GDP in 2050, though growth in China will have tapered off significantly. In fact, Goldman Sachs expects annual real GDP growth in the country to average 1.1% through the 2050s. This is surprisingly slower than America’s expected 1.4% annual growth during the same decade.
The fastest growing economies in Asia during the 2050s will be India (3.1% annually), Bangladesh (3.0% annually), and the Philippines (3.5% annually). These countries are expected to thrive thanks to their high population growth rates and relatively low median age, which translates into a larger work force.
Latin America
Turning our attention to Latin America, we can see that the region will account for a relatively small 7% of global GDP in 2050. According to Goldman Sachs’ previous projections from 2011, many Latin American countries have underperformed over the past decade. For example, Brazil’s real GDP shrank from $2.7 trillion in 2010, to $1.5 trillion in 2020.
Because of these setbacks, Goldman Sachs believes Indonesia will be able to overtake Brazil as the world’s largest emerging market before 2050.
That said, Brazil’s economic ranking is still expected to climb above France and Canada by then, if these projections prove to be accurate.
Markets
What History Reveals About Interest Rate Cuts
How have previous cycles of interest rate cuts in the U.S. impacted the economy and financial markets?
What History Reveals About Interest Rate Cuts
The Federal Reserve has overseen seven cycles of interest rate cuts, averaging 26 months and 6.35 percentage points (ppts) each.
We’ve partnered with New York Life Investments to examine the impact of interest rate cut cycles on the economy and on the performance of financial assets in the U.S. to help keep investors informed.
A Brief History of Interest Rate Cuts
Interest rates are a powerful tool that the central bank can use to spur economic activity.
Typically, when the economy experiences a slowdown or a recession, the Federal Reserve will respond by cutting interest rates. As a result, each of the previous seven rate cut cycles—shown in the table below—occurred during or around U.S. recessions, according to data from the Federal Reserve.
| Interest Rate Cut Cycle | Magnitude (ppts) |
|---|---|
| July 2019–April 2020 | -2.4 |
| July 2007–December 2008 | -5.1 |
| November 2000–July 2003 | -5.5 |
| May 1989–December 1992 | -6.9 |
| August 1984–October 1986 | -5.8 |
| July 1981–February 1983 | -10.5 |
| July 1974–January 1977 | -8.3 |
| Average | -6.4 |
Source: Federal Reserve 07/03/2024
Understanding past economic and financial impacts of interest rate cuts can help investors prepare for future monetary policy changes.
The Economic Response: Inflation
During past cycles, data from the Federal Reserve, shows that, on average, the inflation rate continued to decline throughout (-3.4 percentage points), largely due to the lagged effects of a slower economy that normally precedes interest rate declines.
| Cycle | Start to end change (ppts) | End to one year later (ppts) |
|---|---|---|
| July 2019–April 2020 | -1.5 | +3.8 |
| July 2007–December 2008 | -2.3 | +2.6 |
| November 2000–July 2003 | -1.3 | +0.9 |
| May 1989–December 1992 | -2.5 | -0.2 |
| August 1984–October 1986 | -2.8 | +3.1 |
| July 1981–February 1983 | -7.3 | +1.1 |
| July 1974–January 1977 | -6.3 | +1.6 |
| Average | -3.4 | +1.9 |
Source: Federal Reserve 07/03/2024. Based on the effective federal funds rate. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992, 1984-1986, 1981-1983, 1974-1977).
However, inflation played catch-up and rose by +1.9 percentage points one year after the final rate cut. With lower interest rates, consumers were incentivized to spend more and save less, which led to an uptick in the price of goods and services in six of the past seven cycles.
The Economic Response: Real Consumer Spending Growth
Real consumer spending growth, as measured by the Bureau of Economic Analysis, typically reacted to rate cuts more quickly.
On average, consumption growth rose slightly during the rate cut periods (+0.3 percentage points) and that increase accelerated one year later (+1.7 percentage points).
| Cycle | Start to end (ppts) | End to one year later (ppts) |
|---|---|---|
| July 2019–April 2020 | -9.6 | +15.3 |
| July 2007–December 2008 | -4.6 | +3.1 |
| November 2000–July 2003 | +0.8 | -2.5 |
| May 1989–December 1992 | +3.0 | -1.3 |
| August 1984–October 1986 | +1.6 | -2.7 |
| July 1981–February 1983 | +7.2 | -0.7 |
| July 1974–January 1977 | +3.9 | +0.9 |
| Average | +0.3 | +1.7 |
Source: BEA 07/03/2024. Quarterly data. Consumer spending growth is based on the percent change from the preceding quarter in real personal consumption expenditures, seasonally adjusted at annual rates. Percent changes at annual rates were then used to calculate the change in growth over rate cut cycles. Data from the last full quarter before the date in question was used for calculations. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992, 1984-1986, 1981-1983, 1974-1977).
The COVID-19 pandemic and the Global Financial Crisis were outliers. Spending continued to fall during the rate cut cycles but picked up one year later.
The Investment Response: Stocks, Bonds, and Real Estate
Historically, the trend in financial asset performance differed between stocks, bonds, and real estate both during and after interest rate declines.
Stocks and real estate posted negative returns during the cutting phases, with stocks taking the bigger hit. Conversely, bonds, a traditional safe haven, gained ground.
| Asset | During (%) | 1 Quarter After (%) | 2 Quarters After (%) | 4 Quarters After (%) |
|---|---|---|---|---|
| Stocks | -6.0 | +18.2 | +19.4 | +23.9 |
| Bonds | +6.3 | +15.3 | +15.1 | +10.9 |
| Real Estate | -4.8 | +25.5 | +15.6 | +25.5 |
Source: Yahoo Finance, Federal Reserve, NAREIT 09/04/2024. The S&P 500 total return index was used to track performance of stocks. The ICE Corporate Bonds total return index was used to track the performance of bonds. The NAREIT All Equity REITs total return index was used to track the performance of real estate. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992). It is not possible to invest directly in an index. Past performance is not indicative of future results. Index definitions can be found at the end of this piece.
However, in the quarters preceding the last rate cut, all three assets increased in value. One year later, real estate had the highest average performance, followed closely by stocks, with bonds coming in third.
What’s Next for Interest Rates
In March 2024, the Federal Reserve released its Summary of Economic Projections outlining its expectation that U.S. interest rates will fall steadily in 2024 and beyond.
| Year | Range (%) | Median (%) |
|---|---|---|
| Current | 5.25-5.50 | 5.375 |
| 2024 | 4.50-4.75 | 4.625 |
| 2025 | 3.75-4.0 | 3.875 |
| 2026 | 3.00-3.25 | 3.125 |
| Longer run | 2.50-2.75 | 2.625 |
Source: Federal Reserve 20/03/2024
Though the timing of interest rate cuts is uncertain, being armed with the knowledge of their impact on the economy and financial markets can provide valuable insight to investors.
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