The Future of Riches

New Economic Reality

The economic trend of the globe is moving towards the East, according to a recent report. By 2050, the global economic centre of gravity is poised to be in Asia, where top 4 countries out of 5 in terms of per capita income will be. The report predicts that within 40 years, Asia will boast more wealthier residents than any other continents.

Fastest Growing economies

Compiled by Citibank and a property consultancy named Knight Frank, it’s a lengthy analysis styled "The Wealth Report 2012," based partly on interviews with the super rich (people with more than $25 million in investable assets). The most interesting part of the study is that, it predicts that Singapore-the tiny Southeast Asian city-state will be the world’s richest nation by 2050, with an estimated per capita income of $137,710.By that they mean its per capita GDP at purchasing power parity (that is, it attempts to more accurately measure the average income by considering inflation, cost of living and exchange rates).

More interestingly, the report predicts that India, Bangladesh, Vietnam, the Philippines, Mongolia and Sri Lanka all make the fast-growing list. Of the top 10 fastest rising economies- all but three are in the region (Table-2).  By contrast, the western European countries as well as Japan will be the worst performing ones.

Shifting Centre of Gravity

LSE professor Danny Quah forecasts that by 2050 the world’s economic centre of gravity- a theoretical measure of the focal point of global economic activity based on GDP, will have shifted eastwards to lie somewhere between China and India. In 1980 it was in the middle of the Atlantic.

Apart from those who inherit wealth, most of the millionaires are business owners. To be able to amass such huge amounts of wealth, means there must be an alignment between opportunity and ability present in these economies. The sectors where most wealth are generated from are- natural resources, manufacturing and construction. Citi forecasts that the North American and Western European share of world real GDP will fall from 41% in 2010 to just 18% in 2050. Developing Asia’s share is expected to rise from 27% to 49% in 2050.

China will overtake the U.S. to become the world’s largest economy by 2020, which in turn will be overtaken by India in 2050. Russia or Brazil (part of so-called BRIC) do not make it on to Citi’s list of Global Growth Generators (“ 3G” countries). Instead Citi includes countries such as Bangladesh, Egypt, Indonesia, Iraq, Mongolia, Nigeria, Philippines, Sri Lanka and Vietnam on this list.

While these countries can expect rapid economic growth, much of the wealth already held in developed economies will be maintained, according to Citi.

Measuring a country’s affluence in terms of GDP per capita shows that Singapore currently tops the chart. By 2050, Singapore is expected still to be in the top spot, with Hong Kong and Taiwan moving up to take the second and third places. But the U.S., Canada, UK, Switzerland and Austria will all still be in the top 10, although the U.S. will have dropped down to fifth place in the overall rankings (table-3 ). And the U.S. is the only non-Asian nation to make it through top 5.

Canada, Switzerland and Austria will be able to maintain their berth into the top 10 list upto that time (2050). But old world economies will have the worst growth performance in the next 40 years, the report predicts. Spain, France, Italy and Germany are at the bottom of this list. But, Japan and its aging population will have the weakest projected growth of all economies, Knight Frank estimates.

Most of the countries coined as 3G are currently known as “emerging markets”. But this term is used to tag those countries that are considered likely to thrive in the globally integrated economy.

 

Table 1: THE WORLD’S LARGEST ECONOMIES

2010	Countries	GDP $tn	2050	Countries	GDP $tn
1	US	14.12	1	India	85.97
2	China	9.98	2	China	80.02
3	Japan	4.33	3	US	39.07
4	India	3.92	4	Indonesia	13.93
5	Germany	2.91	5	Brazil	11.58
6	Russia	2.20	6	Nigeria	9.51
7	Brazil	2.16	7	Russia	7.77
8	UK	2.16	8	Mexico	6.57
9	France	2.12	9	Japan	6.48
10	Italy	1.75	10	Egypt	6.02

·         GDP by purchasing power parity (PPP)

·         Source: Global Growth Watchers, Citi Investment Research and Analysis, 2011

Table 2: ECONOMIC GROWTH (3G) 2010-2050

	TOP 10	%	BOTTOM 10	%
1	Nigeria	8.5	Spain	2.0
2	India	8.0	France	2.0
3	Iraq	7.7	Sweden	1.9
4	Bangladesh	7.5	Belgium	1.9
5	Vietnam	7.5	Switzerland	1.9
6	Philippines	7.3	Austria	1.8
7	Mongolia	6.9	Netherlands	1.7
8	Indonesia	6.8	Italy	1.7
9	Sri Lanka	6.6	Germany	1.6
10	Egypt	6.4	Japan	1.0

·         GDP change year on year

Table 3: GDP PER CAPITA

2010	Countries	$US	2050	Countries	$US
1	Singapore	56,532	1	Singapore	137,710
2	Norway	51,226	2	Hong Kong	116,639
3	US	45,511	3	Taiwan	114,093
4	Hong Kong	45,301	4	South Korea	107,752
5	Switzerland	42,470	5	US	100,802
6	Netherlands	40,736	6	Saudi Arabia	98,311
7	Australia	40,525	7	Canada	96,375
8	Austria	39,073	8	UK	91,130
9	Canada	38,640	9	Switzerland	90,956
10	Sweden	36,438	10	Austria	90,158

·         2010 PPP US $

The report notes that tough economic times over the past few years have not affected the rise of centa-millionaires, people with more than $100 million in assets. Today there are 63,000, up 29 percent since 2006. However, rapidly rising GDP does not tell us much about the distribution of wealth. Many of the richest countries in the world today – Qatar, for example- have tremendous wealth gaps. “The distribution of that wealth will be dictated by political factors as much as the economic process itself,” noted Willem Buiter, Citi’s Chief Economist, in the report.

The Future?

CNN notes that some of the West’s super-rich are already crossing the Pacific, in anticipation of the “new Asian Century”. Facebook co-founder Eduardo Saverin, moved to Singapore in 2009 and renounced his US citizenship. Jim Rogers, the co-founder of the Quantum Fund with George Soros, did the same and is now teaching his daughters Mandarin. “I’m preparing them for the 21^st century by knowing Asia and by speaking perfect Mandarin”, he told CNN. “It’s easier to get rich in Asia than it is in America now. The wind is in your face. (The US) is the largest debtor nation in the history of the world,” Rogers added.

The report warns that the dissatisfaction with income inequality shown in the Occupy Wall Street demonstrations “will gain momentum, and that there could be a long-term recalibration between governments, businesses and society as a result.” No doubt, there could be phenomenal shake-up in global economic and political landscape during these times ahead, with massive scopes of wealth re-distribution. The ones who are well-informed and keen will definitely reap the benefits.