Goldman: This Awful Decade Could Be the Century's Best for Global Growth

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If demographics are destiny, then this might be the best decade for global economic growth in 70 years. Take that, Great Recession.

The following chart from Goldman Sachs breaks down global growth over the past 30 years and projects forward for the next 40. The good (or maybe bad) news is that despite the whole "global financial crisis" thing you might have read about, the 2010s are the big winner. (A note on the chart: The dark blue shows Brazil, Russia, India and China's share of global growth, the lighter blue the next 11 biggest emerging markets, the lightest blue all other emerging markets, and the grey the world's rich economies.)

WorldGrowth.png

More specifically, the big winners this decade are China, India, Brazil and Russia. That's the key to understanding why Goldman thinks this coming decade will be a relative golden age for global growth. It's a story about three broad trends: (1) the rise of the so-called BRICs, (2) the end of the era of catch-up growth, and (3) the aging of both developed and emerging markets.

Let's consider these in turn. The end of the Cold War was great news for everybody who didn't like the menace of mutually assured destruction, but it was especially great news for China and India. The fall of the Iron Curtain unleashed a new age of globalization that helped them catapult up the economic ranks. To simplify matters immensely, this surge was largely about the heaps and heaps of cheap labor from China and India entering the global workforce. This fueled a great economic leap forward in the 2000s. Goldman thinks it will fuel an even greater leap in the 2010s.

But the more the BRICs grow, the harder it is to grow quite as quickly as before. China is already discovering this. After growing at a double-digit clip for most of the past decade, China's leaders recently revised their 2012 growth target down to 7.5 percent. It's just a natural corollary of getting richer. Once you catch up, catch-up growth disappears. 

There's also a demographic angle here. The cliché that China will be the first country to get old before it gets rich really might be true. Its one-child policy means that its society will age swiftly over the next 20-30 years. This rapid aging will put something of a brake on its rapid growth. And insofar as China's insatiable demand for commodities has powered growth from Brazil and Russia to Australia and emerging markets across the world, this will slow everyone else down a bit too.

Of course, it's not just China that is aging. It's the whole developed world. With the Baby Boomers retiring, all of the world's rich economies are due to hit demographic headwinds over the next few decades. For countries with staggeringly low birthrates like Japan and Italy, the crunch will be even worse. That's the other half of why Goldman thinks global growth will slow down after 2020: We're slowing down too.

Which is another way of saying: Let's boost our exports! If the United States can't grow quite as fast, we should sell to the populations who are. That doesn't just mean selling more physical stuff. We can also export our brains. For the last century, the world has been tapping the U.S. economy for growth. But this could be the global market's fastest-growing decade of the century. Time for the the U.S. the tap them back.

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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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