The COVID-19 pandemic has affected the global economy in multiple ways

The impact of the pandemic and the response mechanisms that have been developed, will have a considerable impact on medium-term economic growth. It is too early to judge the full consequences, but some trends and dynamics can already be discerned. An important trend that began beforehand, but was accentuated during the pandemic is the move towards a more localized and less intertwined global economy. Another important consequence of the pandemic has been rapidly rising global debt levels. Fiscal and monetary stimulus including guarantees account for around $24 trillion. The challenges related to escalating debt levels have become an increasing concern, particularly given the active talk around inflation in 2021 and the potential for rising future interest rates and tax levels. Adding to this is the drop-off in travel and tourism and how long this continues, as well as the potential for improving productivity from the pandemic-induced drive towards digitalization and artificial intelligence (AI).

GDP growth is projected to average 3.1% p.a. over the forecast period (2020–2045), slowing from 3.8% p.a. in the medium-term to 2.7% p.a. from 2035–2045

After the 2021 recovery, with gross domestic product (GDP) growth forecast at 5.5%, it is expected that growth will slow to around 4% in 2022 and then move back to levels slightly above 3%. It is then anticipated to move slightly higher to reach 3.2% at the end of the medium-term period in 2026. In OECD economies, growth is forecast to materialize more at the beginning of the medium-term period due to pent-up demand and the massive fiscal stimulus to counter the impacts of the pandemic. The medium-term growth outlook in developing countries is anticipated to be relatively diverse with the highest growth rates projected for India and China. Global GDP growth between 2020 and 2045 is expected to increase at an average rate of 3.1% per annum (p.a.) Global growth through to 2045 will be largely driven by non-OECD countries. These are expected to expand by 3.9% p.a. on average, on the back of improving labour productivity and a growing working age population, even as the pace of GDP growth begins to slow in the long-term.

The global economy in 2045 will be more than double the size it was in 2020

Based on 2017 purchasing power parity (2017 PPP), global GDP is projected to rise from around $125 trillion in 2020 to almost $270 trillion in 2045. China and India combined are expected to account for 37% of global GDP in 2045. The Organisation for Economic Co-operation and Development (OECD) is set to account for slightly less, at 34%.

Significant demographic trends will accompany future population growth

The global population is expected to reach 9.5 billion people by 2045. Future demographic trends are marked by an ageing population, a rising working-age population and increases in urbanization and migration rates. The global working-age population (15–64) is projected to rise by around 900 million throughout the projection period, driven by non-OECD countries. However, the relative share of the global working-age population to the world’s total population is anticipated to drop from 65% in 2019 to 63% in 2045. By 2045, approximately 66% of the world’s population is projected to be urbanized. The OECD is projected to experience a rise in its net migration rate of approximately 4.7% by 2045, whereas the developing world is projected to undergo an outflow of population.

Recent changes in energy policies focus on accelerating energy transition

There is growing awareness among policymakers in many countries that there is a need to accelerate actions to address climate change, which have recently resulted in ambitious new policy intentions to achieve net-zero emissions by 2050. Several major countries and regions – including the European Union (EU), the United States (US), Japan, the United KIngdom (UK), Canada and Brazil – have proposed roadmaps to meet these goals, with China targeting carbon-neutral growth by 2060.

At the same time, there is increased public acceptance of products and services with a lower environmental footprint, and a state of technology development that offers solutions – even if they come at a higher cost. These trends are being observed at a time when the post-COVID-19 recovery plans in some major economies provide significant sources of funding that could accelerate the energy transition.