Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 100

The world by 2050

Australia is an island, but what happens in the world economy matters a great deal to what happens in the Australian economy. We don’t know what the world will look like in 2050, but that doesn’t mean we shouldn’t think about it and plan for different future scenarios. We do know a few things, and one of these is that demographics is destiny – almost. Demographics drives economic growth, both within Australia and globally, but it’s not everything. Economic growth also comes from productivity growth and capital accumulation, including investments in private and infrastructure capital and human capital.

Demographic change

A key insight from thinking about future scenarios of the world to 2050 for the design of a retirement system is that the system needs to be flexible and be able to adapt as new events unfold. A system needs to be sustainable and withstand the volatility and uncertainty that the world faces. Understanding the demographics is a good place to start but productivity growth is just as important, especially in the retirement income space.

Figure 1: Global Population GrowthWM Figure1 130315

WM Figure1 130315

Figure 1 shows UN projections of population growth around the world. There is a wide range of assumptions underlying demographic projections, so these are not certain but a reasonable estimate for thinking about the future. At the lowest part of the graph is Japan, which is already shrinking. The line above that is Europe, which is also disappearing demographically. These two historically key drivers of the world economy are shrinking demographically. It is clear from Figure 1 that all lines are trending down, so while the world economy is expected to be growing, it will do so less quickly over future decades.

Changing demographics changes the rates of return on various assets. The stronger the world grows, the more likely the return on capital will be high, as well as returns on a wide range of asset classes. Now focus on China, third from the bottom. China shrinks very quickly and follows Europe and Japan into negative population growth within the next 10 to 15 years. This is mostly due to the one child policy in China. Relying on China for Australia’s growth over the next 30 or 40 years will not be coming from the demographics but it may be driven by productivity growth. Australia’s demographic trend compares favourably with the other major countries.

Another issue that matters from a superannuation and retirement point of view is what happens to the old age dependency ratio. This is the ratio of people aged 65 and above divided by the number of people between 15 and 64 (as a measure of working age population). These measures are not a good guide of actual dependency in the sense that people will have to work longer, as the people who will be in the 15-64 age cohort will not be financially able to support this scale of dependency. Already in Japan, for every 100 people of working age there are 44 people over 65. By 2050, it will be 70 older people per 100 workers. This will be very difficult to finance across the world.

Figure 2: Old Age DependencyWM Figure2 130315

In Figure 2, Australia is the black line. Again Australia’s situation is better than many other countries, and this relative position makes a difference to how we might adjust.

China’s economy bigger than the US

Many people have thought about the future to 2050 using large global economic models and assumptions about demographics and possible productivity growth rates. Key assumptions are how far countries are behind the technology frontier and how quickly they will close that gap. There are many different scenarios that generate very different outcomes by 2050. For example, Figure 3 shows you what the United States and China are projected to look like using many different global economic models (including my own G-Cubed model). In Figure 3 GDP per capita from each model is normalized to an index of 100 in 2010. These projections are in per capita terms so they are the outcomes or productivity growth and capital accumulation netting out the demographic effects outlined above.

Figure 3: Survey Projections of Real GDP per Capita Growth for the US and ChinaWM Figure3 130315

WM Figure4 130315Source: Stegman and McKibbin (2013) “Long Term Projections of the World Economy: A Review” CAMA working paper 14/2013

Figure 3 illustrates the great deal of uncertainty in projecting to 2050. Under a wide range of assumptions, these projections suggest that the US economy in per capita terms will be between 170% and 220% bigger than it is today. That’s a big expansion in an economy that is on the technological frontier. The uncertainty is even larger for China, with the models suggesting that China will be between 300% and 950% larger than today in per capita terms by 2050. When multiplied by the population, it is clear that China is expected to be substantially larger than the US.

Focussing on the relative size of income per capita in the emerging markets in the same sets of studies, there’s an enormous difference in outcomes. But for example, the French model (CEPII) has China at 80% of US GDP per head by 2050. That’s an amazing catch up in productivity and capital accumulation when you consider China is currently 20% of US levels. Clearly even with an unfavourable demographic future in China, it is expected that the amount of productivity catch up and physical capital accumulation may be substantial and enable China to grow in per capita as well as in absolute terms.

World economy will be vastly different

Put all this together and the world economy is expected to be a vastly different place in scale and composition by 2050. Emerging markets will likely be a very large share of the global economy. This is good news, because the rates of return in emerging markets, if robust economic structures are put in place, will drive economic activity to these areas and generate wealth globally even under a scenario of stagnation in advanced economies.

These models give us important insights rather than reliable forecasts. One key issue is that given productivity gaps and the potential for catch-up, particularly in emerging economies, there is still potentially a lot of economic growth in the world economy but it may not be in the traditional regions. In fact, in the scenario of the ‘great stagnation’ where there is a long period of low economic growth in advanced economies, this certainly need not be true for the emerging world. What will matter is the extent that emerging countries can catch up to the productivity frontier that already exists.

Productivity growth in Australia is a key issue for Australia’s future prosperity and the sustainability of retirement systems. Australia has good demographics relative to many other countries which is an advantage. But also important is tapping into trade and investment opportunities in emerging economies, especially in the Asia-Pacific region. China is only part of the story of Australia’s future as the rest of the emerging economies may well dominate the global economy by 2050.


Professor Warwick McKibbin is a former Reserve Bank Board member and is currently Director, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, ANU. He is internationally renowned for his contributions to global economic modeling. Professor McKibbin has published more than 200 academic papers as well as being a regular commentator in the popular press. He was awarded the Centenary medal in 2003 “For Service to Australian Society through Economic Policy and Tertiary Education”. His website is


Leave a Comment:



The populations of key countries are shrinking

The demographics of a growing (and ageing) Australia

Uncharted waters, 2020 and beyond


Most viewed in recent weeks

Who's next? Discounts on LICs force managers to pivot

The boards and managers of six high-profile LICs, frustrated by their shares trading at large discounts to asset value, have embarked on radical strategies to fix the problems. Will they work?

Four simple things to do right now

Markets have recovered in the last six months but most investors remain nervous about the economic outlook. Morningstar analysts provide four quick tips on how to navigate this uncertainty.

Three retirement checks for when you have enough

Not every retiree needs to gun for higher returns, but a conservative portfolio can court its own risks, especially with bond rates so low. But some retirees prefer to settle for a lower income.

How the age pension helps retirees cope with losses

It's often overlooked how wealthier couples can fall back on the age pension if a market loss hits their portfolio. The reassurance is never greater than in a financial (and now epidemic) crisis.

Have stock markets become a giant Ponzi scheme?

A global financial casino has been created where investors ignore realistic valuations in the low growth, high-risk environment. At some point, analysis of fundamental value will be rewarded.

Interview Series: Why it’s gold’s time to shine

With gold now on the radar of individual investors, SMSFs and institutions, here's what you need to know about the choices between gold bars, gold ETFs and even gold miners, with Jordan Eliseo. 

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 377

The most significant change in asset allocation by Australian investors in recent years has been the move into global equities. It's been a canny trade for those who focussed on the US, especially great companies such as Apple, Microsoft, Amazon and Google. International equities experienced net inflows into ETFs of $722 million in August 2020 versus only $181 million for Australian equities. 

  • 30 September 2020

The elusive 12%: is superannuation at a turning point?

Such is the concern among unions and Labor about Government plans to undermine superannuation that an 'Emergency Summit' was called this week, and pioneer Bill Kelty evoked a social commitment.


My lessons from five decades of investing

As she retires after 47 years of investing, Claudia Huntington explains the art rather than the science of the trade, the value of a great leader and culture, and the insights she gives to new colleagues.

SMSF strategies

The impact of our marriage breakdown on our SMSF

Even if a marriage ends amicably, there are complications when partners share an SMSF. You can't simply 'split' the assets on a handshake, and who takes the capital gains and what's the impact on an estate?

Investment strategies

The future is always clearest once it is in the past

It's one of those times when a case can be made that the market is expensive on some measures, but reasonable on others. Better to do what the great companies do: instead of guessing the future, they create it.

Investment strategies

Emerging markets: Should I stay or should I go?

For long-term investors, the most important factor driving returns is the price paid to acquire a stock. Emerging Markets stocks exhibit favourable valuations on both an absolute and relative basis.


20k now or 50k later? What’s driving decisions to withdraw super?

The amount of retirement savings withdrawn under the Superannuation Early Release Scheme has surprised many. This comprehensive survey of thousands of members of Cbus explains their motivations.


The surprising resilience of residential housing and retail

With a pandemic, a recession and high unemployment, there's every reason to expect residential property and retail sales to be collapsing. But data shows both are resilient, so what is happening?



© 2020 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.