China’s miraculous economic growth is set to continue, making it the world’s largest economy by the end of the decade, while the UK economy seems set to ‘moderate,’ the latest economic research suggests.

China has experienced average economic growth of more than 10 per cent per annum since 2003 and economists predict that the country is on course to maintain similar growth rates for the next two years at least.

The second largest economy in the world behind the USA, China has benefited considerably from globalisation and outsourcing over the last decade, effectively turning the country into the workshop of the world. It is this impressive transformation from rural economy into industrial revolution that economists at the National Institute Economic Review (NIER) predict will make the country the world’s leading economy by 2010.

“It should happen quite soon,” commented Dawn Holland, Research Fellow at the NIER in London, on China’s rise. “The Chinese economy is already larger than the Euro Area and currently there is less than five percentage points between China and the USA.”

The rate of annual GDP growth in China has been relatively stable at around 8-10% for the last 15 years and it is predicted that the country could even maintain this growth for a further 15 years as China realises its phenomenal consumer spending. More developed economies such as the USA or Europe can only dream of such growth over the next ten years.

India

India, the second most populous country on the planet after China and fourth largest economy, is also predicted to perform well over the next two years. India accounted for just 1% of all global trade in 2005 as opposed to 7.5% for China.

China’s additional performance came as a result of its integration into the global trading network; it is the third largest global trader after the US and Germany. In the future it is likely that India will perform increasingly better economically, as both India and China already have in place agreements to double bilateral trade by 2010. This agreement will not only increase the economic performance of the two countries, but will also benefit the Indian economy as it will be able to gain more exposure to global trading networks.

Economic Similarities

Interestingly, the NIER predict that there will be a greater convergence in economic performance between the US, Japan and Euro Area over the next two years. All of these economies, which account for forty per cent of world GDP, are predicted growth of between 2.3 and 2.6 per cent. The European economy is likely to perform better than expected, while the US economy, still recovering from a 13% decline in house prices since late 2005, is tipped to perform slightly worse than originally expected at the beginning of the year.

Meanwhile, economists believe that the UK economy, having performed well, particularly against all predictions towards the end of 2006, may now be running marginally above capacity.

“We continue to expect the economy to moderate over the next three years,” said Simon Kirby, Senior Research Officer at NIER. “Our forecast is for GDP to grow by 2.7 per cent per annum this year, slowing to 2.6 per cent and 2.4 per cent per annum in 2008 and 2009 respectively.”

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