In view of the contrasting recoveries from the COVID-19 pandemic, China is expected to overtake rival United States as the world’s largest economy in 2028, five years earlier than the previous estimation, said a forecast by a UK-based think tank on Saturday (December 26).
In its annual report, the Centre for Economics and Business Research (CEBR) hailed China’s “skilful management of the pandemic” and said that “the COVID-19 pandemic and corresponding economic fallout have certainly tipped this rivalry in China’s favour.”
“For some time, an overarching theme of global economics has been the economic and soft power struggle between the United States and China,” said the report. China will have an average economic growth 5.7% a year during 2021-25 while the US is likely to see its growth slumping to 1.9% a year during 2022-24, it added.
Meanwhile, India, which now appears to have been pushed back to being the sixth biggest economy in 2020 after having overtaken the UK in 2019 to bag the fifth spot, will again overtake the country to become the fifth largest economy in 2025. By 2030, India will race to the third spot, the report said.
“India has been knocked off course somewhat through the impact of the pandemic. As a result, after overtaking the UK in 2019, the UK overtakes India again in this year’s forecasts and stays ahead till 2024 before India takes over again,” the report said. The UK appears to have overtaken India again during 2020 as a result of the weakness of the rupee, it added.
The CEBR forecasts the Indian economy will expand by 9% in 2021 and by 7% in 2022. It said that “growth will naturally slow as India becomes more economically developed, with the annual GDP growth expected to sink to 5.8% in 2035.”
The report added: “This growth trajectory will see India become the world’s third largest economy by 2030, overtaking the UK in 2025, Germany in 2027 and Japan in 2030.”
Meanwhile, Japan would remain the world’s third-biggest economy, in dollar terms, until the early 2030s when it would be overtaken by India, pushing Germany down from fourth to fifth, according to the report.
The CEBR said India’s economy had been losing momentum even ahead of the shock delivered by the COVID-19 crisis. The GDP growth rate sank to a more than 10-year low of 4.2% in 2019, down from 6.1% the previous year and around half the 8.3% growth rate recorded in 2016.
“Slowing growth has been a consequence of a confluence of factors including fragility in the banking system, adjustment to reforms and a deceleration of global trade,” it said. The COVID-19 pandemic, the think tank said, has been a human and an economic catastrophe for India, with more than 140,000 deaths recorded as of the middle of December.
While this is the highest death toll outside of the US in absolute terms, it equates to around 10 deaths per 100,000, which is a significantly lower figure than has been seen in much of Europe and the Americas.
“GDP in Q2 (April-June) 2020 was 23.9 per cent below its 2019 level, indicating that nearly a quarter of the country’s economic activity was wiped out by the drying up of global demand and the collapse of domestic demand that accompanied the series of strict national lockdowns,” it said.
As restrictions were gradually lifted, many parts of the economy were able to spring back into action, although output remains well below pre-pandemic levels. An important driver of India’s economic recovery thus far has been the agricultural sector, which has been buoyed by a bountiful harvest.
“The pace of the economic recovery will be inextricably linked to the development of the COVID-19 pandemic, both domestically and internationally,” it said.
As the manufacturer of the majority of the world’s vaccines and with a 42-year-old vaccination programme that targets 55 million people each year, India is better placed than many other developing countries to roll out the vaccines successfully and efficiently next year.
“In the medium to long term, reforms such as the 2016 demonetisation and more recently the controversial efforts to liberalise the agricultural sector can deliver economic benefits,” the think tank said.
However, with the majority of the Indian workforce employed in the agricultural sector, the reform process requires a delicate and gradual approach that balances the need for longer-term efficiency gains with the need to support incomes in the short-term.
The government’s stimulus spending in response to the COVID-19 crisis has been significantly more restrained than most other large economies, although the debt to GDP ratio did rise to 89% in 2020.
“The infrastructure bottlenecks that exist in India mean that investment in this area has the potential to unlock significant productivity gains. Therefore, the outlook for the economy going forwards will be closely related to the government’s approach to infrastructure spending,” it added.
(With inputs from agencies)