The Largest Economies in the World Are Set for a Massive Change
When we think about the largest economies in the world, there’s often a sense that they’ve always been there, right at the top. We feel like nothing will ever change, that at best a few of them might switch places on the list from time to time. But that couldn’t be further from the truth.
The reality is that economies have risen and fallen before, and will do so again, no matter how big or small they might be. These few short decades most of us have lived may have convinced us otherwise, but great change is not only a possibility for the future. It is, in fact, an inevitability.
As we move toward the third decade of the 21st century, there are fewer and fewer of us who remember any great disruptions in the world’s economy, especially those massive ones like the reordering of the world post-World War II. Most people reading this text have only felt the shockwaves of the Great Recession of 2008, or perhaps lived through the fall of the Soviet Union. But those disruptions, as big as they seem to us, are nothing compared to what lies ahead for the biggest economies in the world.
Predicting what lies ahead requires us to look to the past for answers.
A World Reshaped at Bretton Woods
One could argue that the world we live in was created at the Mount Washington Hotel, during the warm month of July in 1944. As World War II entered its final stages and the defeat of the Axis forces became imminent, 730 delegates from 44 nations gathered in Bretton Woods, New Hampshire.
They were summoned there by the new global superpower. The U.S.A. had the highest GDP in the world, now amounting to 50% of the entire planet’s economic output. These delegates gathered to decide exactly how the post-war world would look and on what new rules it would operate. But none of those diplomats came prepared for the offer the United States government had for them. And for good reason.
To those who study history and the ways of the great empires, what the Americans proposed to their allies simply didn’t make sense. The only large economy left unravaged by the war did something revolutionary and unexpected. Instead of demanding other countries bend the knee through usual means like paying tribute and imposing tariffs on trade, the U.S. government offered to protect free global trade using the only surviving navy in the world.
This meant that for the first time in history, trade between the strongest economies in the world would be regulated and safe, no matter who traded with whom. All the U.S. asked of these countries was to pick a side. The Cold War was already on the horizon and the American government was determined to stop the spread of communism, so a new order needed to be created. And it was.
The Bretton Woods agreement reshaped the entire world. It’s the primary reason for the unprecedented global peace we’ve seen since the end of World War II. It gave birth to the International Monetary Fund and the International Bank for Reconstruction and Development, and ushered in a new era of trade and prosperity. But as with all things, it had to come to an end eventually. You might be surprised to learn that this has already happened, in all but formality.
The 10 Biggest Economies in the World Right Now
Before we look to the future and what it holds in store for us, we must first examine the present day. As the top economies all move forward and continue recovering from the global financial crisis, world GDP rankings have remained almost the same, with some noticeable new additions.
Russia and Spain have slipped, to be replaced by India and Canada. But other than that the only truly major change has been the astronomical rise of China. Just 10 years ago, it’s economy was on par with Japan, which held second place in the rankings. But now the GDP gap between those two countries is over $10 trillion in favor of China.
1. The United States
The U.S. economy has faced some severe hardships in the past decade. By far the biggest of these was the Great Recession, which saw the government intervene and bail out big banks. The recession also forced the Federal Reserve to bring interest rates down to 0%. These rates only began to increase again at the end of 2016.
Ten years on, the hard times seem to have passed. The United States will enter the next decade with a soaring economy and the highest GDP in the world, representing over 20% of total global economic output. Its nominal GDP is forecast to exceed $21 trillion in 2019 alone, keeping it about $2 trillion ahead of China. The economy itself is projected to grow 2.5% this year, and 1.7% in 2020.
The United States also reigns supreme when we look at PPP (Purchasing Power Parity) per capita. This is the value of all final goods and services produced within a country in a given year, divided by the average (or mid-year) population for the same year. The average U.S. citizen has a purchasing power of $65,062, which is not the largest in the world, but is still miles ahead of any other economies on the top 10 list.
The growth of the Chinese economy is certainly the most astonishing rise we have witnessed in the past 50 years. In fact, when China began reforming its economic program in 1978, its nominal GDP was just $214 billion. By the end of last year, it was clearly second on the list of the largest economies in the world in 2018. The Chinese economy has grown by about 10% annually for about 35 straight years, reaching $12 trillion in 2019. Only recently has it been experiencing a managed slowdown. It’s projected to grow 6.3% in 2019 and 6.1% in 2020.
China is widely considered to be the factory of the world. That’s why industry and construction represented the largest share of the country’s GDP up until 2013, when modernization pushed forward the tertiary (service) sector. Now, this tertiary sector represents 52.2% of the Chinese economy, while the secondary sector’s share has dropped to 40.7%.
The area where investment in China is rising the most is IT. While other industries are recording a year-on-year growth of about 5 to 6%, investment in the IT sector grew by 30.7% in 2018 alone.
The Japanese economy was once considered to be a miracle at the level of present-day China. It grew rapidly from the 1960s to the end of the 1980s to become one of the 4 largest economies in the world. But the years after that would change everything. The 1990s are now known as the Lost Decade in Japan, as economic growth experienced a significant slowdown due to the burst of the asset price bubble.
After that the struggles continued, no matter what the government did. There were reforms, interest rate decreases, and huge public work projects. But as soon as the economy started to respond, the global financial crisis hit and Japan started showing signs of recession.
In 2019, the Japanese economy will finally grow, but only by 1.1%. This growth is expected to slow down even more in 2020, with a projected 0.6% increase for that year. Japan has a lot of problems to resolve, many stemming from its aging population. But the future doesn’t have to be bleak and the country still has a chance to rise once more.
The fate of Europe has always been decided by the status of Germany, its largest economy by nominal GDP ranking. Germany is also one of the biggest producers of machinery, automobiles, and chemicals, while also being among the largest producers of iron, coal, and steel. When Germany is prosperous and strong, Europe is, too. Ever since the fall of the Berlin Wall in 1989, the country has been the anchor of the entire continent.
Before the Great Recession of 2008, the German economy regularly recorded annual growth of around 1.6%, but its dependence on exports meant the financial crisis hit it hard. The German economy fell by 5.2% in 2009, experienced an incredible surge of 4% the very next year, then became embroiled in the Eurozone crisis dealing with the fall of the Greek economy.
This resulted in the slowdown of the German economy for a few years. But as Europe has stabilized, so has Germany. The country sits fourth on the nominal GDP list with $4.2 trillion in 2019, and is expected to grow by 1.8% this year. This growth is, however, slightly lower than the year before. The trend is projected to continue in 2020, when the German economy is expected to grow by 1.6%.
5. United Kingdom
The U.K. economy was among the fastest growing in the world from 1999 to 2008, with an average GDP growth of 2.8% per year. It was, however, overdependent on consumer credit and investment in the housing market, meaning that the global financial crisis hit the country especially hard.
The echoes of that recession and the 5.2% GDP drop in 2009 can still be felt today as the country scrambles to recover from the crisis. There’s little doubt these economic struggles led to the Brexit referendum and its unexpected leave verdict, a result that has embroiled the U.K. in more turmoil.
It’s true that Britain’s GDP growth has bounced back and has remained in the positive since 2010, keeping the country among the five largest economies in the world. But the growth rate has not yet reached the level it was at before the crisis. Indeed, the U.K.’s annual GDP growth rates have hovered just over 1.0%, with a 1.4% rise projected for 2019 and 1.5% for 2020. The nominal GDP of the U.K. for 2019 will be $3.2 trillion, meaning it will retain fifth spot on the list of biggest economies.
The uncertainty, however, still lies with Brexit, as it becomes increasingly apparent that Britain is set for a hard exit from the Eurozone. Negotiations between the European Union and the U.K. government have fallen flat in the past few months, leading to the resignation of Theresa May. The British public has also grown wary of demands from EU leaders, and there is a rising sentiment that a hard exit is the only true option left for the country.
Will this looming change really bring the economic Armageddon some have predicted? It doesn’t seem likely. But it’s also not certain that Brexit won’t be a net negative decision for the economy and future GDP rankings. Whichever way it plays out, the United Kingdom is the only economy from the top 10 list facing change on such a scale, at least for the moment.
India is the fastest-growing trillion-dollar economy in the world, with a nominal GDP of $2.61 trillion in 2019. By the end of the year, it’s projected to overtake the United Kingdom and become the fifth-largest economy as 2020 begins.
After declaring independence from Britain, India’s economy was mostly agrarian. It was worth just $189.4 billion in 1980, when it was 13th-largest in the world. As it has grown steadily over the years, though, the Indian economy has started focusing more on the service and manufacturing sectors. In fact, India’s service sector is the fastest growing sector in the world, representing over 60% of the country’s economy and 28% of its employment.
Manufacturing has also become a crucial part of India’s rise to the top 5 largest economies in the world, mostly due to the government push via the “Make in India” initiative. This all led to the decline of the agricultural sector, which now represents 17% of the country’s economic output. That’s much lower than before, but much higher than Western nations. For example, agriculture represents just 0.7% of the United Kingdom’s economy and 1.2% of the U.S. economy.
India’s economy is strong because it is not dependent on exports, while also having great demographics and a rising middle class. The global financial crisis therefore didn’t stop India in its tracks, even though it slowed GDP growth, which measured over 9% before 2008. But even though the value of the rupee fell and the deficit increased, India bounced back to surpass China and become the fastest-growing large economy, with a forecasted 7.4% GDP increase in 2019.
France was in a similar position to India when the global financial crisis hit, as it also didn’t rely too much on external trade and only ended up experiencing a downturn in GDP growth in 2009. Still, this long-standing member of the ten largest economies in the world didn’t recover quickly. High unemployment rates haven’t gone down and are becoming a growing concern, causing public turmoil in the opening months of 2019.
France’s GDP growth will be around 1.7% this year, and is projected to fall slightly in 2020 to 1.6%. The current nominal GDP of the French economy is $2.58 trillion, making it the third-largest European economy, representing about 20% of Europe’s GDP. When we look at GDP per capita, France is among the countries with the highest standard of living, with an average purchasing power of $44,549 per person.
The French economy relies mostly on the service sector, which amounts to over 70% of the country’s GDP. This is the best economy in the world for tourism, and being the most-visited country is one of the key components of France’s success, along with its luxury goods and cosmetics industries. It’s also the nation with the highest number of science graduates per thousand workers in Europe, and a global leader in the automotive, aerospace, and railway sectors.
When it comes to agriculture, France is also among the largest producers and exporters in the world, coming second only to the United States in terms of agricultural export figures. The country is also uniquely positioned for the future because of its French-speaking former colonies in Africa, but we’ll cover that in the section below.
Italy is one of the founding members of the European Union and ranks eighth on the list of the 10 largest economies in the world, with a nominal GDP of $1.9 trillion. Its GDP per capita of $31,984 means Italy has among the highest standard of living of any country in the world. But it was also among the countries hit hardest by the Global Recession.
Even before the financial crisis, the Italian economy was slowing down, recording an average of 1.2% GDP growth between 2001 and 2007. This means that, compared to other top countries by GDP, it was already precariously poised. So when the Great Recession hit, Italy suffered a 5.5% contraction, which was its largest GDP drop in decades. It also didn’t recover from the crisis as quickly as other economies, and had further GDP drops in 2012 and 2013.
In recent years, the Italian economy has finally started to emerge from the recession, even though public debt remains high at 132% of GDP. Exports and investment levels have risen, and the economy finally saw GDP increases of 0.9% in 2016 and 1.5% in 2017. While this is definitely a positive sign, Italy is still burdened by political instability, high taxes, and a huge volume of non-performing loans, along with masses of public debt. It seems no matter what measures the Italian government takes, the economy won’t be able to compete with its European peers any time soon.
The most populous nation in Latin America is also a recent addition to the top 10 largest economies in the world. But even though Brazil has risen to ninth place on the list, it is also facing great challenges.
Before the global economic crisis, Brazil's GDP was growing by 3.4% on average, mainly due to high demand for Brazilian commodities. This demand was so strong that even when the Great Recession hit, the country experienced just a 0.3% fall in GDP, bouncing back with a 25-year high growth of 7.5% in 2010. Since then, this commodity super cycle has ended, bringing political turmoil and corruption scandals to the surface. Chaos has shaken the economy, sending it into recession in 2016.
From 2017, the nominal GDP of Brazil has improved. It now sits at $2.05 trillion with a GDP per capita of $9,821. IMF projections for 2019 have Brazil’s economy growing by 2.5%, continuing to recover but still having to deal with a host of internal issues.
Canada has occupied 10th place among the world’s largest economies for the past four years, ever since it overtook Russia in 2015. This rise toward the top of the pile was thanks in part to Canada’s quick recovery after the global financial crisis, which only saw its economy contract by 2.7% in 2009.
Before the crisis, Canada had an average GDP growth of 2.8%. The country is slowly returning to those levels of growth, with a projected 2% increase in 2019. The country was, like Brazil, hit by the end of the commodity super cycle as well, but has regained ground much faster. It now has a nominal GDP of $1.65 trillion and one of the world’s highest GDPs per capita: $45,032. This puts Canada close to the top of the list in terms of standards of living.
When it comes to the cornerstones of the Canadian economy, manufacturing leads the way. As Canada’s largest sector, manufacturing is in a major way responsible for placing the country among the best economies in the world. Even though Canada’s service sector is incredibly strong, more than 68% of the nation’s exports consist of merchandise. The Canadian government is therefore putting even more emphasis on manufacturing for the future of economic growth, indicating that it will continue to shift toward this sector.
The Dawn of a New Age
Ever since 1945 and the Bretton Woods agreement on international commerce, the world has been living in an age of relative peace and prosperity. In fact, never before has there been such a long period devoid of large-scale military conflicts. Smaller wars and regional conflicts have arisen from time to time, but nothing has threatened the world order again.
As such, most of the largest economies in the world have continued to rapidly develop and prosper. But this prolonged prosperity was only a side effect of the historic agreement. The real purpose of the Bretton Woods deal was always to serve as sort of a bribe for the U.S.A.’s allies.
For the seemingly small price of choosing the “right” side, these countries were promised financial aid and relieved of the need to rebuild their armies and navies in order to protect both borders and trade routes. But ever since the Cold War ended with the defeat of the communist superpower, the U.S. government has been less and less interested in maintaining this arrangement with other top GDP countries.
The biggest reason why we didn’t see any tectonic changes until a few years ago wasn’t that previous U.S. leaders were more empathetic or good-willed. It was simply because the country still relied heavily on oil imports for its massive energy needs. However, 2018 saw the last strong bond that held the Bretton Woods agreement together finally break. For the first time in its history, the United States became a net oil exporter, finally achieving energy independence.
This new American independence is rapidly ushering in the Age of Disruption. A few key factors will dictate which economies will thrive and which will crumble beneath the weight of great change. The most important and potentially most disruptive of these are:
- Energy Dependence
- Agricultural Dependence
The current shale revolution in the U.S.A. looks set to cause the biggest disruption of the global economic order. It will also be instrumental to possible future changes among the countries with the highest GDP.
The technology behind fracking has progressed rapidly over the past decade, making it cheaper and much more efficient than before.
The independence of the United States now leaves Europe and Southeast Asia incredibly exposed and dependent on free trade overseas. These countries import almost all of their oil, and any disruptions in trade lines would prove catastrophic for them.
It’s no surprise, then, that the key geographical players in the oil trade, including Turkey, Iran, Saudi Arabia, China, and Japan are all experiencing huge political shifts. Some are even seeing their democracy degrading significantly. These are some of the best world economies ranked, but they’re still facing significant change and upheaval. Geopolitical interests still dominate, and practically every country is uneasy about what the United States is doing. There’s a feeling that America is becoming more isolationist and pulling away from the global economy, or at least from the role of policing it.
Such fears are causing countries to militarize by amassing weaponry and making huge investments in their navies. Countries like China in precarious geographical positions are also moving toward dictatorships, because if the global economy suffers too much, these states face the possibility of catastrophic failure. Middle Eastern powers, on the other hand, already feel like they’re destined to fight for dominance. If the U.S.A. completely pulls out of this part of the world, a military conflict between Iran and Saudi Arabia seems almost inevitable.
This would also be the worst-case scenario for Europe, which is already imposing incredibly high gas prices on its citizens. If there were to be a huge energy crisis in the future, there’s no doubt that the levels of European GDP by country would fall, and many governments on the continent would likely collapse. Such severe crises not only threaten individual nations, but also an increasingly shaky European Union.Europe’s answer to this problem is to move toward renewable sources of energy. In some places like Germany, this means going away from nuclear power, which many consider to be a questionable economic move. Most countries on the continent cannot yet sustain themselves through solar or wind power. Major technological advances are necessary to help resolve these issues around renewable energy and climate change.
Betting everything on more efficient renewable technologies in the coming decades also means that, if problems arise, most countries will once again have to rely on Russian supply lines. Germany already ranks high on the list of nations by GDP that import energy, with 98% of its gas and the majority of its oil coming from Russia.
This is particularly dangerous considering the huge demographic problem Russia currently faces. This leads us to the second most important factor in the rearranging of the global economy.
Economies are nothing without citizens to support them. It’s on the backs of consumers and workers that the state grows rich, which is why countries with demographic problems are facing huge issues over the next few decades.
To help you better understand this, we’ll now examine which countries are best and worst placed in terms of demographics so we can forecast what this means for the future.
1. United States
When we look at the demographic representation of the United States, a few things catch the eye. Baby boomers, of course, remain the largest generation the country has ever produced, but the demographic future looks very bright.
Compared to the other top countries ranked by GDP, the U.S.A. has a huge up-and-coming millennial workforce that will sustain its economy for at least the next few decades. Generation Z comes next. It’s also looking strong, indicating that the demographic outlook for the country will remain positive throughout the century.
While India’s overpopulation crisis has undoubtedly led to a lower standard of living, the nation’s second population boom also has plenty of positive potential. India will enter the latter half of the 21st century as an economic powerhouse with a huge consumer population and a highly educated workforce. If standards of living continue to rise alongside modernization, India may easily become the new superpower in the East.
Mexico is well-poised to rank highly in future GDP by country charts. With an already capable workforce and huge agricultural potential, Mexico’s service and manufacturing sectors are also about to experience unprecedented booms.
The issues that continue to plague the country, however, are sky-high corruption and drug violence. Neither of these problems look set to go away any time soon. From a purely demographic standpoint, though, Mexico is in a much better position than many of its counterparts.
Let’s take a look at three of the most perilously poised nations below.
Russian Federation is completely different from any other economy on the top 10 list by world GDP ranking in 2018, and not in a good way.
With a male life expectancy of just 66.5 years (compared to 77.1 for women) and dwindling younger generations, Russia is facing not only a workforce crisis, but also weakened military capabilities. These numbers depict a dwindling nation that will have to push through at least a couple of hard decades before eventually rebounding.
Even though China has seen unprecedented growth over the past 30 years, making it one of the 3 largest economies in the world, its government is still prone to making short-sighted mistakes. The worst of those might prove to be the one-child policy, with China set to lose half its workforce in just a few decades.
This is one of the main reasons why China’s president, Xi Jinping, has recently seized greater individual control over the country than any leader in the country’s history. Indeed, with such a firm grip on the fate of nearly 1.4 billion people, Xi might now be one of the most influential people ever to have lived. Some may view these as simply the actions of a power-hungry man, but there’s also clearly a strategy at play. With an overwhelming dependence on imported oil and an aging population, it will be hard to keep a democratic China together in the future.
Japan has probably the strangest demographic profile of any nation near the top of the list of countries by GDP. Essentially, Japan is already a country of old people. Despite that, it looks set to remain near the top of the most powerful economies in the world.
Looking at the debt-to-GDP ratio of Japan, you wouldn’t think this economy has any hope for the future, especially with its aging workforce. But the Japanese government has taken a unique approach to this issue.
Japan will remain dependent on energy imports and can’t eliminate is need for oil, but has taken an ingenious approach to manufacturing exports. Indeed, Japan is building factories in or near the places that buy its goods the most. For example, the four largest Toyota factories are all located in the U.S.A.
This way, the government doesn’t have to worry about shipping and exports, and can instead focus on modernizing its factories. In fact, Japan has rapidly risen to fourth place in terms of quality of manufacturing on the list of world GDP by country. It’s no surprise that Japan is also the world leader in robotics. An increasingly mechanized workforce is the perfect antidote to the problems caused by an aging population.
Free maritime trade has allowed global civilization to flourish. But such a sudden and substantial increase in population has caused potentially grave economic problems.
If we take a look at a map of arable land, we will see that the majority of the world’s land is simply not suited to growing food. This is why some nations with favorable conditions shifted their whole economies to agricultural production and exports during the second part of the 20th century.
The population growth of the largest economies in the world in 2018 remained high. As such, their demand for food also grew. As we progress deeper into the 21st century, though, this growth rate will experience a sharp and equally transformative decrease.
The best example of how much such a decrease will affect agriculture-focused nations is China. The Chinese population will, in the next decade, grow at one-third of its current rate. By the middle of the century, its drastic decline in population suggests it will also significantly reduce its food imports.
The United States, on the other hand, could comfortably protect maritime trade routes when its economic production amounted to 50% of the entire world’s, as it was in 1945. Today, however, the U.S. economy amounts to 20% of the GDP of all countries. With each passing year, it’s losing its authority over these trade routes.
This is why agricultural dependency is poised to become the third-most important aspect of economic growth in the future. Not only will the world’s food exporters struggle with dwindling birth rates; they’ll also have to survive in a world where trade is much more difficult and less secure. As most countries depend on imported fertilizers and pesticides, the increase in cost and danger of maritime trade could lead to a worldwide famine.
Some of the largest economies in the world are facing a serious crisis due to the coming population decrease paired with pricier trade routes for agricultural goods. The United States, with its incredible Mississippi Basin and a GDP that is only 8.5% export-based, is insulated from such issues. That means the rest of the world is more likely to face the brunt of the crisis.
We must note that the projections do not account for factors like climate change and the possible rise of sea levels, which can only lead to a bigger and less avoidable future crisis for the global economy.
In any case, there are only five economies beside the U.S.A. that can substantially increase their agricultural output in the next decade:
Australia is perfectly positioned to increase its already strong agriculture sector in the coming years. Most of this increase will revolve around wheat and beef, as the country remains among the two biggest beef exporters in the world. Australia has a potential to be among the largest economies in the world in 2050.
2. New Zealand
New Zealand has tripled its dairy output over the past 25 years, and as a side-effect has become the fifth-biggest beef exporter in the world. If and when New Zealand starts focusing on its beef production, it could triple those exports, too. Along with its Antipodean neighbor, it’s well-poised to become leader in meat exports.
In terms of geography and landscape, Myanmar is perfect for growing rice, with the immense Irrawaddy River running through the middle of the country. The country faced huge political turmoil and endured a harsh dictatorship throughout the 20th century, but things appear to be on the mend. As Myanmar opens itself up for trade, it could become a major rice exporter in the future.
Argentina is already a rising South American power in the GDP ranking of 2019, even though Brazil has historically been stronger. In terms of arable land, though, Argentina is positioned much better, giving it huge potential for productivity. Add to this great infrastructure and energy self-sufficiency, and Argentina has the perfect recipe for success in the post-Bretton Woods world.
France is, in a sense, the European equivalent of Argentina. It has all the similar geographical benefits and is poised for another period of economic growth, with a large influx of skilled laborers. The strengthening influence of French-speaking workers from developing countries in Africa should not be ignored, either.
If the world’s current geopolitical and economic situation shows us one thing, it’s that we shouldn’t be complacent about the status quo that has governed us for more than 70 years. The largest economies in the world are all subject to change and are all bound to face some major challenges over the coming decades.
Nations that are smart about the future can survive these inevitable issues, and even potentially profit from them. Whatever happens and whichever country rises to the top, one thing seems certain; we’re all about to witness the reshaping of our world.
I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.
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