Hamish McRae: By 2020, could the world's richest country be a little closer to home than China and Russia?

We are slowly coming to appreciate that this downturn will have quite different characteristics to previous ones, with the biggest new element being the influence of the "Brics" (Brazil, Russia, India and China).

One obvious consequence of their continued growth has been that demand for energy and raw material has continued to rise, despite the slow-down in the West. One effect of that has been continued high inflation everywhere, driven by commodity prices, which in turn has reduced the ability of central banks in the developed world to cut interest rates. Last week the European Central Bank, far from being able to cut them, had to increase rates.

Here in the UK, the effect of higher fuel prices, in particular, seems to have led to a sharp change in people's habits, with fuel sales reportedly running 20 per cent down, astounding if maintained, and the shops quite suddenly feeling the draught. So the Bank of England will have to hold rates, despite the fact that the downturn has evidently hit the high street, with Marks & Spencer revealing poor financial results and John Lewis reporting a sharp fall in sales last week.

Those of us who have been warning that next year will be the really difficult year, not this one, may have to accept that winter will come a little earlier than we expected. But the thrust of our argument still stands, for while all the economic forecasts for 2008 show UK growth of at least 1 per cent, several are now coming through with a figure that starts with a zero for 2009. Thus both HSBC and Capital Economics have cut their forecast to 0.5 per cent and Lehman Brothers has come out with a 0.3 per cent projection. The Treasury forecast that growth next year will be higher than this is clearly for the birds.

There is a further matter you might like to recall when the Bank of England holds interest rates after its meeting next week: even if central banks could credibly cut their rates, that would not have much effect on the rates charged to the rest of us. You can see that from the American experience. A year ago the official Federal Reserve rate was 5.75 per cent. Now it is 2 per cent. But long-term mortgage rates have not fallen at all, and the interest yield on corporation debt has actually risen. This is uncomfortably similar to the situation in Japan in the early 1990s when the Bank of Japan cut rates to zero but the rate that banks charged would-be borrowers, assuming they could get a loan at all, hardly fell.

All this does point, as I suggested last week, to a rather darker outlook. The share markets certainly thought so, making their distress very evident. Technically we are now in a bear market, rather than just a "correction", for share prices have fallen more than 20 per cent from their peak. But bear markets, like economic slowdowns, do not last for ever and at some stage in the future the markets will start to feel able to look through the valley and see the bright uplands beyond.

When they come, the global economic terrain will look different. So as an antidote to this inevitable preoccupation with what might happen in the next few months, you might like to have a look at what might happen during the next expansionary phase of the world economy.

Goldman Sachs has done some new runs of its famous Brics econometric model, looking at the world ranking of major economies in 2020. Some of the results of this are shown in the two graphs above. Start from the left. Aside from the obvious, that China will have leapt past Japan to become the world's second largest economy, closing in rapidly on the US, there are several other points of interest. One is that India will be poised to pass the UK to become the world's fifth largest, having already passed France. Another is that Russia will be bigger than Italy.

Actually when Jim O'Neill, Goldman's chief economist, and his colleagues presented these results in St Petersburg last month, there was some feeling that they understated the likely performance of Russia. The most important issue here is the extent to which Russia can broaden its activities away from being simply an energy producer to become a more balanced economy.

Russians will be quite rich in terms of GDP per head, with a per capita income in present-day dollars of some $20,000 a year, as the right-hand chart shows. And now, as you look at that one, you might have noticed something rather surprising: according to Goldman Sachs, the richest country in terms of income per head will in another 12 years' time be, ahem, us – richer even than the Americans. I don't know what the likely wealth per heads will be in Luxembourg or Ireland because they are not included in the calculations, but if these figures are right, the UK would be back to the position it last occupied about 1870 as the world's richest country in terms of wealth per head. So while the shift of power to the Brics continues, some of the G7 can still look forward to a bright future.

Can that be right? Well, an econometric model is simply a model: what you get out depends on what you put in. The Goldman model has various elements, including the size of the working population, assumptions about exchange rates and so on. What one can say is that the model has proved remarkably accurate so far. I suppose the big issue from a UK perspective is whether the features that have led to a better economic performance than most of continental Europe over the past 15 or so years will continue for another 15. My instinct is that, though we will do all right and may still pull ahead of the other large European countries, the progress made since the early 1990s will be hard to sustain.

Still, the Goldman model is always interesting, not so much because it will be right, but rather as a template against which to calibrate one's own judgement. And as we head into what will undoubtedly be a more difficult period over the next two to three years, maybe even a bit longer, it is surely helpful to recall that there will be another growth phase for the world economy beyond these difficulties. Just as it is a different sort of downturn, so it may also be a different sort of recovery.

We reap what we sow using crops for biofuels

So biofuels are not such a great idea after all. There is a ferocious debate about the extent to which efforts to promote them are responsible for the rise in world food prices, but it is undeniable that if you have a sharp decline in the supply of a basic food crop such as maize, and even a modest increase in demand, there is liable to be a big effect.

We know that from the oil market, where a small disruption in supply has a huge impact on the price. Some one-third of the US maize crop is now being turned into fuel and therefore taken out of the food supply, so it would be astounding were prices worldwide not to soar. Since maize is such a basic crop, it would be astounding too were it not to pull up the prices of other grains, and of meat as animals are part-fed on grain. The requirement of the EU to incorporate a proportion of biofuel into regular output adds to the pressure. Indeed, were you to try to develop a policy designed to increase the price of food worldwide, this would be about as effective as you could get.

So what should we conclude? Three thoughts.

First, it is too early to try and put hard numbers on the proportion of the rise in food prices that should be attributed to the switch to biofuel. On the other hand, the impact must be substantial and we should be honest with ourselves about that.

The second is to suggest that politicians need to grasp the laws of supply and demand – and the law of unexpected consequences. Well-intentioned people can do a lot of damage if they don't understand economics. It cannot be sensible to subsidise British wine-growers to produce fuel for Prince Charles' Aston Martin. Rationally it is absurd, yet it was presented to the public last week as an environmentally friendly gesture.

Third, we should not dump the idea of biofuels just because our first foray into them has led to a global catastrophe. It should be possible to grow fuel on marginal land and using crops developed for fuel, rather than for food. But it will take time – and honest economics.