We are currently witnessing the changing of the economic guard, with emerging-market economies—particularly in Asia—making huge development strides and the hegemony of the West looking ever shakier. The Covid-19 crisis has seemingly accelerated this change: China was one of the few major economies to record growth last year for instance, while the U.S. and Europe were mired in deep recessions. The next several years should see a continuation of recent trends, with China and India further closing the economic gap with developed economies.
1. United States: USD 25.3 trillion in 2024
FocusEconomics panelists see the U.S. retaining its title as the world’s largest economy, with a forecast for nominal GDP of USD 25.3 trillion in 2024. Healthy private consumption and fixed investment, still fairly favorable demographics and a loose fiscal stance under Biden will all support activity. However, soaring public debt and a possible resurgence in inflation due to stimulus measures are risks. Moreover, the U.S. will still shed relative economic clout; while in 2000, the U.S. economy was around four times the combined size of the BRIC economies (Brazil, Russia, India and China), the BRICs will be over 10% larger than the U.S. in 2024.
“We foresee record-breaking consumer spending growth in 2021, driven by a watered-down $1.3tn version of Biden’s $1.9tn American Rescue Plan, vaccinations reaching 60% of Americans over 15 by July, and job growth accelerating this spring. Real-time data already show demand picking up, which suggests the recent soft patch was temporary. We expect the economy will grow 5.9% in 2021 as an improved health situation supports a summer mini-boom in activity.” – Gregory Daco, chief U.S. economist at Oxford Economics
2. China: USD 20.6 trillion in 2024
Our panelists forecast Chinese GDP at USD 20.6 trillion, or roughly 81% of U.S. GDP, in 2024. In 2018, the corresponding figure was around 65%. China’s strong handling of the Covid-19 crisis has supported domestic activity and the value of the yuan: both factors will boost the size of the Chinese economy in USD terms over the forecast horizon. Moreover, strong private consumption will be a key growth driver in coming years, with the government putting a particular focus on strengthening domestic activity as part of its “dual circulation” strategy. However, U.S.-China trade tensions and elevated debt levels pose risks.
“The pandemic, […] dealt a much larger blow to the US economy than to China’s economy. […] We believe China is on the right track. Beijing seems increasingly on guard to limit financial stability risks (e.g., not overeasing monetary policy and tightening property market macroprudential measures) and focused on long-term sustainable growth with its new dual circulation strategy. Time will tell, but in our view there is a high likelihood that 2026 will be the milestone at which China re-emerges as the world’s largest economy.” – Analysts at Nomura
3. Japan: USD 5.6 trillion in 2024
Japan will remain the world’s third largest economy, with nominal GDP of 5.6 trillion. The economy will be aided by stronger foreign demand and extensive fiscal support at home. However, it will have lost further ground to both developed and emerging-market rivals as a shrinking population feeds through to anemic economic growth.
“Japan has faced chronically weak aggregate demand and a permanent output gap for most of the past three decades. […] further efforts are needed to strengthen wage growth, sustain price momentum, and support aggregate demand. [Moreover] Japan’s working-age population is projected to decline by about 30% between 2020 and 2050, so the support to potential growth from employment will weaken unless further steps are taken to boost the labour supply.” – Stefan Angrick, senior economist at Oxford Economics
4. Germany: USD 4.9 trillion in 2024
Germany is projected to cling onto fourth place, with nominal GDP of USD 4.6 trillion. The country weathered the Covid-19 crisis better than many other developed economies, and going forward, activity should be aided by robust manufacturing and a supportive fiscal stance. However, like Japan, the country’s unfavorable demographics will weigh on economic momentum in the coming years.
“The German economy still performed better than most of its European peers [in 2020]. Relatively light and shorter lockdowns than in the spring, staycations in the summer, strong fiscal stimulus (though only a fraction of the announced stimulus has been used so far) as well as the economy’s strong manufacturing basis have been the main drivers.” – Carsten Brzeski, head of global macro at ING
5. India: USD 4.9 trillion in 2024
India is set to become the world’s fifth largest economy by 2024, with nominal GDP of USD 3.7 trillion, overtaking both France and the UK. While the country was hit hard by the Covid-19 pandemic and an ensuing harsh lockdown, the impact of the pandemic appears to be lessening, and recent economic signs are encouraging. Growth will be spurred in the coming years by surging consumption, investment and exports, while structural reforms pose an upside risk. That said, the decision in late 2019 to bow out of the Regional Comprehensive Economic Partnership—a free-trade pact recently agreed between ASEAN, Australia, China, Japan, New Zealand and South Korea—could hamper the external sector somewhat. Moreover, shaky infrastructure and a weak banking sector will act as impediments to growth.
“The government’s majority in the lower house will give it flexibility in determining the economic policy agenda. The parliament has already passed substantial structural reforms as it looks to support economic growth. The lockdown will amplify the mounting issue of non-performing loans (NPLs) in the banking and non-bank financial institutions (NBFI) sector. The government will recapitalise some major banks and is also likely to arrange further consolidation of the sector, focusing on banks that are highly strained.” – Economist Intelligence Unit
https://www.focus-economics.com/blog/the-largest-economies-in-the-world
