Gross Domestic Product (GDP) - Outlook from the Organisation for Economic Co-operation and Development (OECD)

Indicator Assessment
Prod-ID: IND-62-en
Also known as: Outlook 041
Created 21 Jan 2015 Published 13 Feb 2015 Last modified 04 Sep 2015, 07:00 PM
Following the turbulence of the late 2000s, global GDP is projected to grow steadily up to 2050. Rapid growth is projected for China, with it overtaking the USA as the biggest single economy before 2020. India is also expected to grow rapidly surpassing the EU before 2050.

Key messages

Following the turbulence of the late 2000s, global GDP is projected to grow steadily up to 2050. Rapid growth is projected for China, with it overtaking the USA as the biggest single economy before 2020. India is also expected to grow rapidly surpassing the EU before 2050.

What are the current and projected global trends in economic growth (GDP)?

Historic and projected GDP in the EU, the US, the BRIICS countries and other countries

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Contribution of major economies to global GDP

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Figure 1 shows that there are two broad patterns for projected increases in GDP: steady and strong.

The majority of economies, including the US, EU-OECD, Brazil, Russia and South Africa, are projected to experience a steady increase in GDP up to 2050. For the EU-OECD, the US and Russia these trends are expected to be consistent with their patterns of growth prior to the economic crisis in the late 2000s.

Conversely, Figure 1 shows that the GDP of China and India is projected to grow strongly. Between 2014 and 2020, China’s economy in particular is projected to grow rapidly and might overtake the EU-OECD and the US as the world’s largest economy. This growth is projected to continue at a rapid, but slowing, rate until 2050. India’s economy is also projected to increase strongly albeit at a slower pace than that of China. By 2050 India is projected to be the third largest economy after China and the US.

Due to the strong growth of China and India, the US and EU-OECD's proportion of the world’s economy will decrease substantially (Figure 2); although these economies are projected to grow steadily. For example, in 2000 the 21 EU-OECD countries had a 28% share of global GDP, this fell to 23.3% in 2010 and is projected to have fallen further to 14.7% by 2050.

Figure 2 also shows that India, in comparison, had 4.12% of the world’s GDP in 2000 and that, by 2050, this is projected to have risen to 15.3 %, an increase projected to be exceeded only by China (8.1% in 2000 and 25.1% in 2050).

What are the current and projected global trends in per capita economic growth (GDP)?

Historic and projected per capita GDP, in the EU, the US, the BRIICS countries and other countries

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GDP per person is projected to grow steadily in the coming decades for all major world economies, though with varying magnitude (Figure 3). For OECD-Europe, average per person GDP is projected to regain the 2007 level (i.e. before the start of the economic crisis) in 2015. With respect to the long-term trend from 2010 to 2050, EU-OECD and US levels are projected to rise by 188 % and 185 %, respectively. In contrast, average Chinese and Indonesian per person GDP is projected to increase by a factor of five, and the Indian average per person GDP is projected to increase by a factor of six, over the same period.

As a consequence, the gap between the levels of per person GDP in the US and EU-OECD in comparison with major emerging economies is projected to decrease significantly. While, for example, the average per person GDP in China was only 5 % of the US level in 1996, it increased to 15 % in 2010, and is projected to further increase to 41 % of the US level in 2050. Likewise the Indian average per person GDP increased from 4 % of US levels in 1996 to 7 % in 2010, and is projected to reach 21% of US levels in 2050.

Indicator specification and metadata

Indicator definition

GDP can be calculated in three ways, providing different perspectives on the balance of economic activity. Essentially these three approaches consist of adding up the total value of incomes, spending or production in a country or region during a period of time.

More formally they can be defined as follows (OECD, 2015b):

  1. the ‘income approach’ calculates GDP based on the sum of primary incomes distributed by resident producer unit;
  2. the ‘expenditure approach’ calculates GDP based on the sum of the final uses of goods and services (all uses except intermediate consumption) measured in purchasers' prices, less the value of imports of goods and services;
  3. the ‘output approach’ calculates GDP as the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).

Applying these approaches using current price data will deliver an estimate of nominal GDP. Nominal GDP data are often adjusted to facilitate meaningful comparisons of economic output between different time periods and between different countries.

For example, nominal GDP is adjusted to remove the effects of price inflation in order to provide a more realistic measure of changes in the volume of economic production. Constant price estimates of GDP are obtained by calculating the value of production in different periods using the price levels from a single base period. Similarly, nominal GDP growth is converted into real GDP growth using the ‘GDP deflator’ (OECD, 2015a).

Price differences between countries can likewise make it hard to compare the volume of national production using nominal price data at market exchange rates. Purchasing power parity (PPP) estimates of GDP compensate for differences in prices between countries to provide a better comparison of the volume of goods and services produced in different countries or regions. They thereby support better comparisons of living standards (OECD, 2015c).

The data shown in this indicator are expressed in 2005 US dollars in PPP terms.

References

OECD, 2015a: 'OECD Glossary of Statistical Terms - Gross domestic product (GDP) – constant prices Definition' (http://stats.oecd.org/glossary/detail.asp?ID=1164) accessed 19 Jan 2015.

OECD, 2015b: 'OECD Glossary of Statistical Terms - Gross domestic product (GDP) Definition' (http://stats.oecd.org/glossary/detail.asp?ID=1163) accessed 19 Jan 2015.

OECD, 2015c: 'OECD Glossary of Statistical Terms - Purchasing power parities (PPPs) – OECD Definition' (http://stats.oecd.org/glossary/detail.asp?ID=2205) accessed 19 Jan 2015.

Units

Varying, depending on figure:

Figure 1: Billion 2005 USD PPP

Figure 2:  2005 USD PPP

Figure 3: Percentage (%)


Policy context and targets

Context description

GDP is often cited as a measure of economic performance and of living standards. Certain countries (e.g. China and India) have established GDP growth targets as a component of their national development planning, while many others use GDP projections to guide financial and economic policy because of the strong links between economic growth and fiscal revenues, debt sustainability and employment rates.

In Europe, the EU and its Member States responded to the 2008 economic crisis by putting in place a number of strategic policies to increase economic growth across the Union. The resulting ‘Europe 2020’ strategy includes Europe wide targets and specific recommendations for each Member State (EC, 2010).

European regional policy is also directed at improving the economic development of the least wealthy regions in Europe. These are defined as regions where GDP is less than 75% of the EU’s average GDP. Regional policy includes targeted investments intended to develop these areas and to increase their economic growth (EC, 2013).

The link between GDP and environmental policy is particularly evident in the area of resource efficiency. The ‘Roadmap to a resource-efficient Europe’ (EC, 2011) established resource productivity as the EU’s provisional lead indicator in its resource efficiency scoreboard. Resource productivity is defined as Euros of GDP per kg of domestic material consumption (GDP/DMC). According to the same logic, the resource efficiency trends of particular sectors can be estimated by comparing resource consumption or emissions to sectoral gross value added.

Within Europe there is some debate about the appropriateness of GDP as the primary measure for national development. One major concern is that GDP (or GDP per capita) excludes many important dimensions of human well-being, including local environmental conditions. It thereby provides a rather distorted picture of changes in living standards.

Another concern is that focusing on the amount of goods and services that a country produces in a period of time potentially provides a misleading indication of the status of the capital stocks (including ecosystems) that will determine future production. Indeed, focusing solely on GDP creates incentives to deplete capital stocks because the returns are treated as income.

The need for better measures of economic performance and living standards is now widely recognised. In Europe, the European Commission’s ‘Beyond GDP’ initiative aims to support the development of alternative indicators and their integration into decision making (EC, 2009; EC, 2014).

Targets

No targets have been specified

Related policy documents

Methodology

Methodology for indicator calculation

Methodology for indicator selection (including description of data used)

Methodology for compilation of historic economic data:

The OECD’s projections combine expert judgement with historical data provided by countries. Sources for the historical data are publications of national statistical agencies and OECD statistical publications such as the Annual National Accounts, the International Monetary Fund, the United Nations and Eurostat.

Methodology for making long-term projections:

The OECD’s projections are produced by its country experts, working with OECD topic specialists. Their forward-looking assessments refer to historic data and take into account current and prospective developments, including officially mandated policies, historical relationships between key variables and new information and indicators related to domestic and global conditions.

The OECD uses the NIGEM model of the British National Institute of Economic and Social Research, which uses a ‘New-Keynesian’ framework. As a policy-advice model, NIGEM is also designed to be flexible, allowing assumptions on behaviour and policy to be changed. Expert judgement is used in determining these assumptions.

The effects of new elements and revised judgments are typically assessed at the start of each projection round; these are taken in conjunction with simulations of the effects of revised assumptions. In making the projections, particular attention is paid to consistency at domestic and world levels, to ensure that key accounting identities and relationships are observed, notably with respect to international trade and the balance of payments, a process assisted by the OECD’s international trade model (Murata et al., 2000; Pain et al., 2005) and a variety of other estimated relationships between key variables. 

Outputs from this process are collated and uploaded to the OECD Long Term Baseline projection which is the primary information source for this indicator.

Methodology for gap filling

see ‘Methodology for indicator selection’

Methodology references

Uncertainties

Methodology uncertainty

The OECD periodically reviews its projections for predictive accuracy. These analyses try to distinguish between errors arising from projection revisions, changes in underlying assumptions and errors of judgement about economic conditions and forces shaping the outlook (OECD, 2011).

Typically, larger projection errors occur around major turning points in economic activity. The reasons for these errors may include errors of judgement or a decline in the predictive power of standard economic relationships, for example, through unexpected and significant events. These so called ‘black swan’ events can cause radical and unexpected changes in economic and social circumstances and all projections are vulnerable to these.

There are also challenges relating to the quality of information available in and around cyclical turning points. Assessments of accuracies related to past OECD projections are provided by Koutsogeorgopoulou (2000) and Vogel (2007).

Projection uncertainty

The OECD projections are subject to a number of common assumptions. These include: macroeconomic policies, fiscal policies, domestic monetary policies, oil and non-oil commodity prices and exchange rates.

Population is a key determinate of future GDP and the OECD’s projections are based on the United Nations medium scenario (UN, 2013). Information on the nature of other assumptions can be found on the OECD’s website (OECD, 2011).

References

Koutsogeorgopoulou, V., 2000, 'A Post-Mortem on Economic Outlook Projections', OECD Economics Department Working Papers, Organisation for Economic Co-operation and Development, Paris.

OECD, 2011, 'Economic outlook, analysis and forecasts - OECD' accessed 10 November 2014.

UN, 2013, 'World population prospects: the 2012 revision', United Nations Department of Economic and Social Affairs, New York, US.

Vogel, L., 2007, 'How do the OECD Growth Projections for the G7 Economies Perform?', OECD Economics Department Working Papers, Organisation for Economic Co-operation and Development, Paris.

Data sets uncertainty

No uncertainty has been specified

Rationale uncertainty

As noted above, there are a number of criticisms of GDP. These relate to the fact that GDP is a measure of market activity alone. As a result, many activities that contribute to well-being are excluded, such as time spent caring for vulnerable groups, home maintenance and cleaning, food preparation, and voluntary service for neighbourhood, church, and civic groups.

GDP also treats the depletion of natural capital assets as current income. This means that the loss of natural capital may augment GDP, even though it may lead to losses in public goods and reductions in ecosystem services, which may undermine future living standards.

The European Commission’s ‘Beyond GDP’ initiative (EC, 2009) has been addressing these criticisms. The initiative’s work has continued (EC, 2014), notably in the development of alternative indicators and attempts to include these indicators into key policy areas, such Sustainable Development Goals (which will replace the Millennium Development Goals) and the OECD’s regional wellbeing assessment (OECD, 2014b) developed under the umbrella of the OECD Better Life Initiative (OECD, 2014a).

References

EC, 2009, Communication from the Commission to the Council and the European Parliament - GDP and beyond : measuring progress in a changing world, COM/2009/0433 final.

EC, 2014, 'European Commission - Beyond GDP', accessed 10 Nov 2014.

OECD, 2014a, 'OECD Better Life Index', accessed 10 November 2014.

OECD, 2014b, 'OECD Regional Well-Being', accessed 10 November 2014.

Data sources

Generic metadata

Topics:

Environmental scenarios Environmental scenarios (Primary topic)

Tags:
gross domestic product
DPSIR: Driving force
Typology: Descriptive indicator (Type A - What is happening to the environment and to humans?)
Indicator codes
  • Outlook 041
Dynamic
Temporal coverage:
1996-2050
Geographic coverage:
Brazil, China, Earth, India, Indonesia, Russia, South Africa, United States

Contacts and ownership

EEA Contact Info

Tobias Dominik Lung

EEA Management Plan

2014 2.3.1 (note: EEA internal system)

Dates

Frequency of updates

Updates are scheduled once per year
Filed under:
European Environment Agency (EEA)
Kongens Nytorv 6
1050 Copenhagen K
Denmark
Phone: +45 3336 7100