Malaysia in the Top-30 by 2050?

From this weekend’s The Star:

Is 2050 our next big target?

...HSBC Bank plc issued the report, The World in 2050: Quantifying the Shift in the Global Economy, on Jan 4, and it's relevant to us here because Karen Ward, the bank's senior global economist and lead author of the report, seems pretty optimistic that Malaysia will fare well over the next four decades...

...According to the HSBC analysis, come 2050, Malaysia will be No. 20 among the world's top 30 economies, as ranked by the size of gross domestic product (GDP). That will mean climbing 17 rungs between now and 2050, the biggest jump recorded by any of these 30 countries. Thailand, the Netherlands, Switzerland, Hong Kong and South Africa are among those below Malaysia in the league table. Singapore will not even be in HSBC's top 30…

…For example, HSBC reckons that China will be the largest economy in 2050 and India will occupy third place. Other than Malaysia, the emerging economies that will make significant headway in the world standings include Mexico, Turkey, Indonesia, Egypt, Thailand, Colombia and Venezuela.

Those who will lose a lot of ground are the ageing, rich European economies with small populations. Switzerland and the Netherlands will tumble down the table in 2050, while Sweden, Belgium, Austria, Norway and Denmark are not even in the bank's top-30 list...

...The first part is largely derived from the work of Robert Barro, an economics professor at Harvard University. To work out estimates of per capita income, the HSBC economics research team looked at key determinants of economic development in three areas economic governance (the degree of monetary stability, political rights and the level of democracy, the rule of law, the size of government), human capital (the level of education, health of the population and fertility rate) and the starting level of income per capita.

The idea is to establish how the economic conditions will affect how much an individual will be able to produce. HSBC has calculated that Malaysia's income per capita will grow by well over 500% between 2010 and 2050.

The next step is figure out the number of people being put to work across economies in the coming years. This is where demographics come into the picture.

“Differences in the demographics alone could explain as much as 2.5% points in GDP growth differentials in the coming decades,” says the report. A principal factor is the expected growth of each country's working population. HSBC relied on numbers from the United Nations. Malaysia is one of the countries that will see a strong expansion in their workforce, an increase of more than 40% from now until 2050.

I’ve written about the potential effects of demographic change on Malaysia’s economy and outlook before (here and here) – it’s nice to be validated. Getting into the top-30 largest economies in the world might be a bit of a stretch though, even if we are talking about a 40-year span.

As the report indicates, this result is a best case scenario, and lots of things have to go right before that happens. Still, there’s some room for optimism, and even more pressure for us to get the foundations right.