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01-03-2012

When Gen Y hits mid-life, U.S. no longer world's leading economy

Forbes,
March 2012.

By the time Gen Y hits mid-life, the U.S. will no longer be No. 1. But neither will China.

Most of us mere mortals cannot predict what will happen to us tomorrow, or where the S&P 500 will be by the end of 2012. But some of us are capable to look far into the future and, with a little help from mathematical models and a good guess, can come up with a good sense of what life will be like decades down the road.

According to real estate consulting firm Knight Frank Research and Citi Private Bank’s 2012 Wealth Report, India will overtake China to become the world’s biggest economy by 2050. That might seem like a long way off. But that’s 38 years from now. Most people in their 30s today will still be alive. Their kids will just be entering their mid-30s and 40s themselves. This isn’t generations from now, it’s Gen Y in the U.S. watching America lose its status as the world’s largest economy.

In fact, according to Knight and Citi’s 68 page report, that would have happened already by 2020, just 8 years from now, when China takes the No. 1 spot and the U.S. slips to No. 2. The U.S. will still be richer per capita. Our per capita income is around $45,000 while China’s is a little over $5,000, according to the International Monetary Fund, using 2011 data. Even if China per capita income rose 10 fold in 10 years, it would be $50,000, which would beat the U.S. only if the U.S. per capita income declined over the next decade, which is unlikely.

Nevertheless, in terms of economic output from China and India, total GDP will be in the multi trillions, above and beyond the U.S. economy well within the time that Gen Y reaches their mid life crisis and starts buying electric powered Corvettes and dating people half their age.

Meanwhile, the U.S. economy is expected to have a GDP of $39.07 trillion by 2050. It was estimated to be slightly above $15 trillion in 2011.

In terms of growth from 2010-2050, India would be the second fastest growing economy, powering along at the rate of 8% in the period, according to Knight and Citi.

London School of Economics professor Danny Quah has calculated that the world’s economic centre of gravity – the average location of economic activity by GDP – is on the move. By 2050, the steady rise of emerging economies in Asia will have pushed the theoretical centre of gravity modelled by Prof. Quah from its location in 1980 in the Atlantic Ocean to somewhere between China and India by 2050. He predicts that political influence will follow a similar trajectory eastwards.

It all begs the question — will we see more Gen Yers moving to Singapore, Hong Kong, Mumbai or even closer to home, in places like Rio de Janeiro and São Paulo, forecast to be the fifth largest economy by 2050, up from No. 7 now.

“Individuals can become millionaires or multimillionaires through saving their earnings, a trend most commonly seen in more developed and established economies. But, apart from those who inherit wealth, most people who are very wealthy, say with assets of $10 million or more, are business owners,” says James Lawson, Director at Ledbury Research in London. “To amass this sort of wealth means there must be an alignment between opportunity and ability. For those who make more than $50m, the opportunity usually arises because of a major liquidity event, and these are more common, and can be tapped into more readily, in fast-moving economies.”

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