Global Navigator from KPMG Economics
July 2024
This edition of Global Navigator takes a closer look at the trends expected to shape the global economy over the next quarter-century. The era of flourishing global trade, which boosted Asia and brought manufacturing to developing economies over the past few decades, is undergoing profound change. Near-shoring, friend-shoring, re-shoring and trade disputes are altering the global trading order. Aging demographics and armed conflict are expected to weigh heavily on growth, especially in Europe. And the biggest tectonic shifts may come from generative artificial intelligence (GenAI) and climate change. Developed economies are better position to leverage the shifts in GenAI and weather changes in climate.
Pinch points
The big three trends
- Asia is poised to outperform all other regions due to population growth in India and Indonesia and a strong industrial sector. The largest hurdle to India is its legislating bureaucracy and stresses on its energy grid. Although the Middle East and Africa are forecast to have strong population growth, the positive effects will likely be offset by economic mismanagement and dependence on oil during the transition to renewables.
- GenAI will benefit developed economies more than emerging markets due to the need for energy and the costs associated with running the large language models. China, which is now the world’s second largest economy, is investing heavily in GenAI. Private sector and public sector investments in GenAI are starting to scale up.
- A surge in extreme weather events will damage property, idle plants and trigger widespread migration. Low-lying coastal regions and countries that rely heavily on agricultural exports are expected to be hardest hit. Emerging markets have fewer resources than developed economies to deal with climate change, which will spur migration.
A downdraft in global growth
The global economy is expected to slow from 3.1% in 2023 to 2% in 2050. The slowdown will be driven by a decline in the world’s population growth rate and flat productivity. Global growth was slowing prior to the pandemic and is forecast to continue its downward trend.
Asia’s contribution to global economic growth (Chart 1) and share of the global economy (Chart 2) are both forecast to increase. The rise in Asian economic share comes at the expense of North America and Europe.
Long-run global growth is defined by two factors:
- Productivity growth, which means an economy generates more output per unit of labor and capital than in prior periods; and
- Labor force growth, which is dependent upon population, when more people increase the number of contributors to the economy.
Many things could change in the forecast that could alter growth paths or create volatility. Climate change, for example, could displace millions of people, destroy infrastructure and reduce productivity. Conversely, GenAI is expected to boost productivity. Some challenges are structural; others can be addressed through policy reforms.
Chart 1: Contribution to Global Growth
Real GDP by Purchasing Power Parity, Average annual growth rate, Percent
Chart 2: Share of Global Output
Average annual share of world real GDP by Purchasing Power Parity, Percent
Global Outlook
- The global economy is forecast to be slower than the 3.6% pace of the 2000s or 3.4% of the 2010s.
- Volatility is expected to increase as geoeconomic uncertainty grows and trade continues to fracture. The world order that has provided relative stability since World War II appears to be waning, making for more variability of countries’ goals. Climate change will stress food supplies, supply chains, infrastructure and human habitation.
- Global growth is forecast to slow primarily due to declining birth rates and, consequently, labor force growth. The economic booms of the past are not expected to be repeated, even with the advent of GenAI, although there will be some boost that will disproportionately aid developed countries.
HeadwindsShort-run challenges include high interest rates, supply chain shocks and the restraints armed conflicts place on growth. Misallocation of resources when investing limits some countries’ growth. Manufacturing transitions, via capital investment, are shifting the norm of labor-intensive processes going to the cheapest labor market, limiting the potential of some developing economies. Cyberattack damages, including data breaches and ransomware, are forecast to grow from $12 trillion today to $24 trillion by 2027; the expectation is for 2050 to be far worse. Government debt overload threatens to derail necessary public investments in everything from education to infrastructure. Climate change may lead to estimated productivity losses between 2% and 10% per degree Celsius increase, depending on the sector. | TailwindsGenAI is anticipated to boost productivity growth around the world. Supply chain reorganization will add resilience to global value chains, which was lacking during the pandemic. |
Regional Leaders
Asia (Cambodia, China, Hong Kong, India, Indonesia, Japan, Laos, Malaysia, Myanmar, Philippines, Singapore, South Korea, Taiwan, Thailand, Vietnam)
- The region’s annual growth rate was 4.9% in 2023, is forecast to fall to 4.1% in 2030 and slump to 2.2% in 2050—a substantial slowdown from the 6% growth of the 2010s and 2020s. India, Indonesia, the Philippines and Vietnam are forecast to lead the region.
- Volatility is forecast to increase due to climate change; however, economic strength spreading to countries like Vietnam, India, Indonesia and Vietnam should diversify risk.
- China was the primary driver of output since the turn of the century and now accounts for 17% of the global output. A drop in population and the push to diversify supply chains away from the second largest economy are expected to flip the country from a driver to a drag on global growth. Four of the largest ten economies in the world will come from Asia.
HeadwindsMisallocation of resources High vulnerability to climate change Manufacturing transitions Government debt challenges in some countries | TailwindsLabor force growth Long-term investments in manufacturing Supply chain reorganization |
North America (Canada, Mexico, United States)
- In 2023 the region’s annual growth rate was 2.5%, growth is forecast to remail flat at 2.5% by 2030 before sliding to 1.9% in 2050. This is roughly flat from the 2.1% pace of the 2010s. The United States has been, and will remain, the region’s growth engine.
- Volatility is expected to be low, although the United States-Mexico-Canada Agreement (USMCA) is a potential monkey wrench. USMCA is scheduled to be reviewed in 2026 and, if it is not approved, the agreement could be dissolved by 2036.
- The region is expected to experience declining influence in global trade as tensions rise but will continue to lead in innovation. Mexico will continue to gain importance and economic power as supply chains reorganize.
HeadwindsIn the US, low population growth Cyberattacks | TailwindsGenAI productivity gains Supply chain reshuffling benefitting both Mexico and Canada Industrial policies |
South America (Argentina, Brazil, Chile, Colombia, Peru, Uruguay, Venezuela)
- The region’s annual growth rate was 1.5% in 2023, is forecast to jump to 3.1% in 2030 and level off at 3% by 2050. Growth has been bumpy, dropping from 3.3% in the 2000s to 1.1% in the 2010s. Argentina and Brazil push the region forward.
- Volatility will come from climate change and the limited ability for governments to react due to debt burdens.
- Brazil and Argentina are forecast to be among the global top 20 largest economies by 2050. Brazil is forecast to land at 6th while Argentina squeaks in at 19th due to solid labor force growth. Argentina’s declining inflation is expected to give the country a boost in the short run as economic uncertainty declines.
HeadwindsClimate change Government debt overload | TailwindsStrong productivity growth led by inbound Brazilian and Asian investment Newfound crude oil reserves |
Regional Laggards
Europe (European Union, Norway, Russia, Switzerland, Ukraine, United Kingdom)
- In 2023 the region’s annual growth rate was 1.3%, by 2030 growth is forecast to climb to 1.7% before sinking to 1.1% in 2050. Growth flat to grinding down from 1.7% in the 2010s. Growth in Ireland, Ukraine and Poland top larger economies such as France and Germany.
- Volatility is expected to increase, stemming from regional armed conflicts and the lack of a unified government to pursue fiscal and monetary policies when needed. Elections in the region are showing a shift in preference toward extremes.
- Europe is forecast to be the slowest growing economy by 0.8 percentage points in 2050. The former world economic leader’s contribution to global growth is expected to decline in every decade. At the country level, every major European economy is forecast to fall in the economic output rankings.
HeadwindsLow fertility rates Armed conflicts Regional disunity in the European Union and Eurozone Cyberattacks | TailwindsGenAI, though limited due to regulatory rigidity |
Middle East and Africa (Algeria, Bahrain, Egypt, Israel, Jordan, Kuwait, Lebanon, Nigeria, Oman, Qatar, Saudi Arabia, South Africa, Türkiye, United Arab Emirates)
- In 2023 the region’s annual growth rate was 1.6%, and by 2030 growth is expected to more than double to 3.4% before falling to 2.5% in 2050. This is a downshift from the 3.4% growth of the 2010s. Nigeria and Egypt are the region’s growth leaders.
- Volatility in the region will likely be high due to climate change and shifts in economic drivers, such as crude oil.
- Low productivity growth will hinder growth as it has in the past. Positive demographics can only take the region so far without proper policy support. Major economies in the Middle East are seeking economic diversification to hedge against the decline in oil demand.
HeadwindsClimate change Government debt overload Infrastructure and economic mismanagement in Sub-Saharan Africa Reliance on fossil fuels amid transition to renewables in Middle East | TailwindsSub-Saharan Africa’s population is expected to peak after 2050 Digitization |
Oceania (Australia, New Zealand)
- In 2023 the region’s annual growth rate was 1.8%, by 2030 growth is forecast to increase to 2.3% before declining slightly to 1.9% in 2050. Growth is declining from 2.7% in the 2010s. Australia leads New Zealand, but only slightly.
- Volatility is expected to be low due to limited effects from climate change and low economic risk.
- Australia, the region’s anchor, has vast mineral wealth and is located relatively close to major buyers. Mining is the economy’s backbone and still carries the most weight. Few changes are anticipated moving forward for the economy.
HeadwindsServices, notorious for low productivity, make up many of the top sectors Geopolitical risk | TailwindsContinued demand for mining Relatively strong population growth |
Volatility is expected to increase as geoeconomic uncertainty grows and trade continues to fracture.
Benjamin Shoesmith, KPMG Senior Economist
Bottom Line:
Downside risk is elevated amid slowing global growth. There are many headwinds with the most pernicious being climate change and an increasingly chaotic geopolitical environment to more benign manufacturing relocations. Worsening volatility will likely become the norm for firms, consumers and financial markets. Buckle up. It’s going to be a rough ride.
Global forecast update
Global growth is forecast to dip from 3.1% in 2023 to 2.9% in 2024 before edging up to 3%in 2025. Consumption and investment are expected to drive gains, as inflation continues to cool and central banks begin the process of cutting rates.
Most central banks are expected to begin rate cuts in the second half of 2024. The European Central Bank conducted its first rate cut in early June, while the Federal Reserve is forecast to first cut in September.
Fiscal stimulus is forecast to be limited, given already high debt loads, which are now compounding at much higher rates than we have seen since prior to the onset of the global financial crisis in 2008-09.
Leaders and laggards: Shifts in supply chains are driving growth in the developing world. The Association of Southeast Asian Nations (an economic and political union of ten countries referred to as ASEAN) has been the largest beneficiary.
Latin America is next on the list. With Mexico seeing the largest gains due to the USMCA trade agreement and its access to the US market.
The Euro Area is expected to remain sluggish. The biggest laggards are those countries still experiencing rampant inflation, such as Argentina and Zimbabwe.
Global risks: The Federal Reserve continues to hold off on rate cuts, which has triggered large currency moves across the developed and developing world. That could delay the pace of rate cuts elsewhere, notably in smaller emerging markets. Markets are reacting to elections around the world. The USMCA is set to be renegotiated in 2026 possibly straining North American trade.
Global Outlook Forecast - July 2024
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