Picture: ISTOCK
Picture: ISTOCK

Frankfurt — The global economy has lost steam, with activity increasingly concentrated in major Asia nations. Aging populations drag on growth and public finances. Living standards have improved — unless a trade war changes all that.

Welcome to 2060, as seen by the Organisation for Economic Co-operation and Development (OECD). It’s drawn out how the world will look if policy and institutional settings remain largely the same, and how it might be transformed by investment, innovation, or rising protectionism.

One of its alternative scenarios is an undoing of trade liberalisation — a growing possibility now that a spat between the US and China continues to escalate. This would reverse a trend that has ushered in decades of labour-efficiency growth and supply-chain integration across countries. Returning to average tariff rates from 1990 could depress long-run global living standards by at least 14% by 2060, the OECD says.

The report, less concerned with robot servants and flying trains, looks at social and economic structures. The scenarios aren’t meant to be realistic forecasts but should "illustrate some of the forces that could shape the medium- and long-term outlook" and inform policy discussion, according to the OECD.

The striking feature in the baseline case is the continued slowdown in world economic growth. From 3.4% next year, weakening momentum in large emerging markets and aging populations pull it down to 2% over the coming decades.

At the same time, unsurprisingly, the economic centre of gravity will shift further toward Asia, with India and China accounting for almost a half of global output.


The alternatives posited include governance and education reforms that boost investment incentives in emerging markets. If the Brics nations matched those of the OECD, they could see their living standards as much as 50% above the baseline scenario by 2060.

The OECD also looks at competition and labour policies, and ways to offset the drag from the demographic shift. Higher spending on family benefits, lower tax burdens, and government programmes to help the unemployed find work could boost employment.

Increases in the legal retirement age equal to two thirds of future increases in life expectancy — known as the "Portuguese approach" — in all OECD countries would raise aggregate employment of older people by more than five percentage points by 2060.

Other reforms highlighted are boosting research and development in all OECD nations to the level of the five leading countries. That would lift labour efficiency and raise overall living standards by 6% by 2060, the report says. Better public infrastructure would also support both private activity and quality of life. Done properly, it can often finance itself as higher output eventually generates fiscal revenue.