Hamish McRae: Think big and look to 2050 and our outlook is not bad

Economic Life: If you exclude the public sector, UK productivity is higher than in 2007

Behind all the angst about Britain's place in Europe is surely a wider concern about Britain's place in the world. It is partly a political issue, of course, but it is primarily an economic one. A strong and sizeable economy gives political clout should a country choose to deploy it, while a weak economy inevitably reduces political influence.

Click HERE to view graphic

The shock of the recession and, perhaps more so, the slow pull out of it, has left people here focusing on the small: whether GDP grew in the past three months, what can be done to encourage bank lending to small companies, whether the correction of the fiscal deficit is too fast, and so on. There is nothing wrong with this, for these are all material issues. But it might be helpful to stand back for a minute and look at the big, and in particular at how the UK might rank in the world in 2050. If that seems unutterably far away, reflect on the fact that it is when people who have recently joined the workforce will be hoping to draw their pensions.

There have been a number of studies of the likely shape of the world economy 40 years on, most notably that of Goldman Sachs, which coined the acronym Brics. Much of the attention then and subsequently was on when China would overtake the US to become the world's largest economy, with dates as early as 2018 and as late as the 2040s being cited. My own back-of-an-envelope calculations suggest some time in the 2020s, but we will see.

But this focus on China and the other Brics tends to divert attention from less headline-grabbing issues, such as the progress of the other large, fast-growing economies – Mexico, Indonesia, Turkey for example – and the change in the position of the mature developed countries.

This last point becomes extremely important when you start of think about the debts that have been run up within the European Union, not just following the recent recession but also as a result of the Continent's large unfunded pension liabilities. If you are thinking of buying 30-year Italian debt, you want to think about the likely ability of the country to redeem that debt in 2032.

A year ago HSBC reported on the world's top 30 countries in 2050 – that is in terms of the size of their economies. It has just done the same exercise for the top 100, starting with China (of course) and running down to... Cyprus. I have shown the top 20 in the chart, calculated in US dollars at the dollar's real value in 2000.

A couple of things stand out. One is that the lead that China is projected to have over the US is rather smaller than that expected in some other studies; likewise India is still well behind the US, while some projections have put it ahead by then. Brazil is projected to be smaller than the UK, notwithstanding some calculations that put it ahead in 2011. I don't want to go into the detail of all this because what you get out of the model depends very much on what you put in: quite small variations in the inputs over time deliver very large differences in outcomes. But if you want to focus simply on the position of Britain, it is interesting and mildly encouraging. We are now HSBC's number five in the world. By 2050 we go down to number six. Our economy will still be a little smaller than that of Germany and our GDP per head will be somewhat lower too. But thanks to a rising population, a function partly of inward migration but also of somewhat higher fertility, the UK (assuming Scotland is still included) becomes Europe's most populous country, with 72 million people against Germany's 71 million.

In terms of GDP per head, the UK would remain poorer than the richest European nations – Luxembourg and Switzerland. But we would be number 11 in the world, with a materially higher income per head than we have now. The popular notion that the next generation of Britons will inevitably have lower living standards than their parents does not really hold up.

Goldman Sachs has just done a study on the loss of output the UK has sustained as a result of the recession and how quickly it will be recovered. The basic point Goldman makes is that the UK economy has growth at an average of 2.5 per cent a year since the aftermath of the First World War. It had nudged a little above the trend line in 2007 and now has dipped a little below it. Labour productivity growth for the economy as a whole has fallen quite sharply since 2008 and has yet to recover to its past peak.

Many people have assumed that there has been a permanent loss of productive capacity associated with this fall in productivity. But if you exclude the public sector the picture is much better and productivity is actually up on 2007. The Goldman study argues that the outlook is more positive and productivity growth will speed up as the recovery gets under way. The financial sector, which has very high productivity, is likely to contribute less in the future but the contraction of the public sector will more than offset this. There will be some permanent loss of output (Goldman thinks growth in the fourth quarter of last year will come in as a minus) but not as much as people think.

My own feeling about all this is that we are all underrating the ability of any economy to adjust to different circumstances. It is right to be very cautious about this year, given all the stuff that is happening over the Channel. But longer-term the prospects are brighter. Human ingenuity works out ways of increasing real wealth.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
News
people
News
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own