LAGOS — The global financial system would no longer be dominated by the dollar or any single currency by 2025 and six major emerging economies— Brazil, China, India, Indonesia, South Korea, and Russia—will account for more than half of all global growth, says a new World Bank report.
The report, Global Development Horizons 2011-Multipolarity: The New Global Economy, projects that as a group, emerging economies will grow on average by 4.7 per cent a year between 2011 and 2025. Advanced economies, meanwhile, are forecast to grow by 2.3 per cent over the same period, yet will remain prominent in the global economy, with the euro area, Japan, the United Kingdom, and the United States all playing a core role in fueling global growth.
“The fast rise of emerging economies has driven a shift whereby the centres of economic growth are distributed across developed and developing economies— it’s a truly multipolar world,” said Justin Yifu Lin, the World Bank’s chief economist and senior vice president for development economics.
“Emerging market multinationals are becoming a force in reshaping global industry, with rapidly expanding South-South investment and FDI inflows. International financial institutions need to adapt fast to keep up.”
“Over the next decade or so, China’s size and the rapid globalisation of its corporations and banks will likely mean a more important role for the renminbi,” said Mansoor Dailami, lead author of the report and manager of emerging trends at the World Bank.
“The most likely global currency scenario in 2025 will be a multi-currency one centred around the dollar, the euro, and the renminbi.” To sustain growth and cope with more complex risks, economies that are home to emerging growth poles need to reform domestic their institutions, including in the economic, financial, and social sectors.
China, Indonesia, India, and Russia all face institutional and governance challenges. Human capital and ensuring access to education is a concern in some potential growth poles, particularly Brazil, India, and Indonesia.
According to the report, emerging economies that used to rely on technological adaptation and external demand to grow will have to make structural changes to sustain their growth momentum through productivity gains and robust domestic demand.
Global Development Horizons maps out the challenges that a multipolar world economy poses for developing countries over the next twenty years. The authors use empirically_based indices to identify high_growth countries with strong human capital and technological innovation, and that also drive economic activity in other countries.
Growth spillovers are likely via cross_border trade, finance, and migration, which will induce technological transfer, and increase demand for exports.
The report highlights the diversity of potential emerging economy growth poles, some of which have relied heavily on exports, such as China and Korea, and others that put more weight on domestic consumption, such as Brazil and Mexico. With the emergence of a substantial middle class in developing countries and demographic transitions underway in several major East Asian economies, stronger consumption trends are likely to prevail, which in turn can serve as a source of sustained global growth.
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