Is it really a mystery, though? Consider the following table, which shows GDP growth since the 1980s for the larger economies, the BRICs (Brazil, Russia, India, and China), and the “Next Eleven” (N-11) most populous developing countries.
With the fourth column (2011-2020) showing what my colleagues and I had projected back in 2001 when we coined the BRIC acronym, one can observe differences between what was forecast and what has happened this decade (2011-2017). For the world as a whole, we predicted growth of just over four percent in the current decade, owing to the rise of China and the other major BRICs. And it is precisely for that reason that growth in the 2001-2010 period was stronger than in the preceding decades, when the persistence of 3.3 percent annual growth led some economists to conclude that the global economy had reached its full potential.
When it comes to the next decade, much of the focus lately has been on China, whose current slowdown seems to have taken markets by surprise. It should not have. As we predicted almost 20 years ago, China will struggle to attain growth above five percent in the 2021-2030 period, for the simple reason that its workforce growth will have peaked. While pessimists will no doubt find validation in the further Chinese growth disappointments that are to come, optimists can point to the fact that five percent annual growth in China is nominally equivalent to 15-20 percent growth in Germany. At this stage in China’s development, faster growth would actually be quite extraordinary.
As for the eurozone, we appear to have been too optimistic, even though we foresaw a decline in potential growth to 1.5 percent. Nowadays, most forecasters put the region’s growth potential at around one percent. If Germany cannot shift to a more domestic-demand-driven growth model, that projection will probably turn out to be correct. Yet while most press coverage has focused on Germany’s falling exports and manufacturing output, the country’s services sector remains strong. For its own sake as well as for Europe’s, Germany should embrace that strength permanently.
Among the loose assortment of N-11 countries—most of them in Asia and Africa—are some fast growers like Vietnam. Others, especially Nigeria, have remarkable potential given their demographics, but will never reach it unless they undertake significant reforms. In that, they have something in common with many of the advanced economies.