The US-Australia Alliance in the Twenty First Century

Emerging Asia stream

The world economy in 2100

Five alternative visions of the future and the development of the Alliance

Huw McKay
Westpac Bank1

Abstract
There is a considerable degree of uncertainty and thus disagreement
about the future course of the world economy. This paper seeks to offer
some empirical guidance for the debate by presenting a suite of high level
long run economic growth scenarios for the major actors, with an emphasis
on developments in emerging Asia. These projections, which are based on a
variety of assumptions on the rate and degree of convergence, aim to cover
most of the major stylised positions on Asias economic future. The aim is
to provide a catalogue of five scenarios from which non-economists can
select economic anchor assumptions for their deliberations in other fields.
Having set out these alternative visions of the future of the global economy,
they will then be discussed in the context of the prospective development of
the Australia-US Alliance.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1!The!views!expressed!in!this!paper!are!the!authors!personal!opinions!and!

should!not!be!ascribed!to!the!companies!of!the!Westpac!Group.!

There is a considerable degree of uncertainty and thus major disagreement

about the future course of the world economy. Over the sort of time
horizons relevant to the choice and assessment of alliance partnerships
when a decade or two can appear trivial - even small disagreements on the
future trajectory of economic growth become substantial disagreements on
the future relative scale of nations. Indeed, when ones view extends over a
century, alternate expectations of relative economic growth can imply
visions of the future that are so far apart that debate on the non-economic
aspects of security questions are almost pointless in their presence.
This paper seeks to offer some empirical guidance for the debate by
presenting a suite of high level, long run, global economic growth scenarios
with an emphasis on developments in emerging Asia. These projections,
which are based on a set of assumptions on the rate and degree of
convergence, aim to cover most of the major stylised positions on Asias
economic future. The aim is to provide a catalogue of five scenarios from
which non-economists can select economic anchor assumptions for their
deliberations in other fields. Having set out these alternative potential
futures for the global economy, the implications of the results will be
discussed in the context of the prospective development of the Australia-US
Alliance.
The paper will proceed as follows. The initial task is to describe the jumping
off point for the scenarios, which is the International Monetary Funds
(IMF) baseline forecast for the world economy out to 2017, as outlined in
its semi-annual World Economic Outlook of April 2012. The second is to
outline and discuss the five long run scenarios in narrative form. The third is
to present the resulting profiles for world growth, the distribution of output
and relative living standards at various points between the present and 2100.
The fourth is to draw out implications of these scenarios for the
development of the US-Australia Alliance over the course of the twenty-first
century.
The most important points arising from the scenario work are arguably
1. China will be the worlds largest economy for most of the time
between its IMF forecast takeover of the USA in 2016 and mid
century in every scenario, even the most pessimistic. However, it

finishes the century at number one just once in the five scenarios, reaching
2100 in fourth place twice and second place twice.
2. India is the largest economy in the world in 2100 in three of the
five scenarios and is a close second in another two. In four out of five
scenarios India spends at least some time as the worlds largest economy.
3. The scenario that produces a world economic structure most consistent with a
balance of power scenario (between the USA, Developed Europe, China
and India) is one where emerging Asian economies collectively stall around the
middle income level. This is also the scenario where the USA rallies
back to number one by centurys end after falling behind in its
middle decades.
4. Developed Europe finishes the century as the worlds third or
fourth largest economy in each scenario, indicating that it will
remain economically relevant even in the face of the Asian ascent.
5. While the Japanese will remain a wealthy people, the economys size
will be surpassed in all scenarios by Indonesia, in most scenarios by
Brazil and Russia, and on a single occasion each by Canada and the
Philippines.
6. No economy outside the top four will comprise more than 6.1% of
world output (a relative position equivalent to China circa 1996) in
any scenario. What is highly notable outside the top four is that
Indonesia finishes the century as number five in every scenario but one. That
implies very strongly that the widely used BRIC grouping of
countries is not a particularly useful one for long run analysis. These
scenarios highlight that not only are China and India in a very
different league to Brazil and Russia, but also that Indonesia will be
a bigger long run economic factor than either of the latter two
powers. That is of course a particularly relevant point for any
considered discussion of the Australia-US Alliance.
7. The scenarios draw out the stark differences in the long run
demographic profiles of the major economies (as projected by the
United Nations). Societies that are already old (Japan, South Korea,
Developed Europe) with contracting working age populations will
fall away appreciably in relative economic scale in the first half of
this century. Younger societies (India, Indonesia, the Philippines)
with growing working age populations in the second half of the
century forge ahead. Those in the middle including the Alliance

partners show some resilience in defending global market share.

Chinas unique combination of modest income levels and an ageing
population makes its share of global activity highly vulnerable to the
future maturation of its catch-up growth phase.
8. Weak growth in the advanced countries, particular for the frontier
defining US, would be very damaging for absolute global living
standards in the long run. Weak growth in the emerging world
would keep the West in the game from a scale perspective
throughout the century, but the trade off is a major loss of global
prosperity.

Where we are: the distribution of global economic activity in the

second decade of the twenty first century.2
The world economy is still suffering from the legacies of the unsustainable
debt accumulation that took place in advanced countries in the decade
leading up to the Great Recession of 2008/09. This recession was
precipitated by a resounding housing market crash and an intense financial
crisis in the United States. It was propagated broadly through financial and
real economy channels. In the time since, outside of the immediate rebound
phase where large fiscal and monetary stimulus policies were able to pull
confidence out of its spectacular downdraft, the world economy has been
kept off balance by rolling financial and sovereign debt crises in Europe.
Against this backdrop emerging markets, including those in Asia, have seen
their growth rates lowered. The first challenge for these countries in the
recovery phase was to look inwards for a higher proportion of activity. The
second was to wean themselves off the stimulus policies enacted in self
defence in 2008/09. In the face of these challenges, the economic
performance of the major emerging economies has been respectable in
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2!From!here!forward,!unless!specified!otherwise!the!term!world!economy!is!

defined!as!the!combined!activity!of!a!subset!of!major!Asian!economies,!plus!the!
USA,!Australia,!Canada,!New!Zealand,!Developed!Europe,!Russia!and!Brazil.!All!
shares!reported!in!the!text!are!to!be!understood!as!a!proportion!of!this!subset,!
not!of!the!full!sample!of!countries!in!the!IMF!database.!This!subset!represented!
approximately!80%!of!total!activity!in!2012.!While!it!is!tempting!to!widen!this!
subset!to!include!more!economies,!with!Singapore,!Pakistan,!Myanmar,!
Bangladesh,!Mongolia,!Afghanistan,!Sri!Lanka!and!the!DPRK!among!those!
considered!but!ultimately!excluded!to!keep!the!discussion!manageable.!

absolute terms, and highly creditworthy in relative terms, ensuring that a

strong rate of catch-up has been maintained.
As of 2012, the IMF estimates that in purchasing power parity (PPP) terms
the USA and the combined economies of Developed Europe are a similar
size, each representing roughly one quarter of activity in our sample. China
is about one fifth of the total. Japan and India each represent around 7%
while Russia and Brazil are each about 4%. The combined weight of the
major ASEAN economies sums to something close to 5%, almost 2
percentage points of which is represented by Indonesia; South Korea and
Canada are a little over 2% each, with the former having a slight edge; while
Australia comes in at 1.5%.
By 2017, which is the end point of the IMF projection, China has surpassed
both the USA and Developed Europe, India has left Japan far behind and
Korea is edging away from Canada, who has been surpassed by Indonesia in
the meantime. So, the short period between this year and the end of the
IMF projections, which we take as the jumping off point for our scenarios,
is expected to see some important changes in relative rankings at the top
and in the middle ranks.
The IMF estimates are taken as a neutral jumping off point for the scenarios
to take any of the authors own biases out of the equation. However, the
author and many others have described the IMF forecasts, particularly in the
shorter term regarding Europe, as tilted towards the optimistic end of the
plausible range. That may be a function of the organisations conservative
bias, and the indirect influence of the governments that comprise its
stakeholders, which tends to produce trend-like, uncontroversial forecasts
that are not too far from the assumptions embedded in national budget
documents. Of course, the IMF does critique its own forecasts in a detailed
semi-annual narrative. This discussion of the potential risks that may
intercede and prevent trend-like growth from eventuating is a valuable
check on the raw numbers. At present, the IMF clearly sees the balance of
risks for world growth as skewed to the downside, which is entirely
appropriate.

The scenarios: compilation and description

The method used to compile the scenarios is extremely simple. First, the
United Nations medium fertility demographic projections are taken as
given. Second, each scenario is underpinned by a projection of US economic
growth, which defines the per capita frontier. Third, convergence
assumptions for all other economies are chosen consistent with the tone of
each scenario. In other words, each economy is assigned an ultimate target
level of GDP per capita relative to the US, which may be reached before,
after or at 2100 depending upon its historical performance level and the
IMF defined starting point. Fourth, the size of national economies and the
annual rate of growth are defined by back solving from the known variables
(or more correctly, hard keyed assumptions) of population and the GDP per
capita level relative to the frontier.
The five scenarios prepared have both a number and a name. They are
1. Blue Sky. In this scenario the economies of emerging Asia smoothly
converge towards the living standards of a still expanding West,
without interruption, over the full course of the twenty-first century.
2. China bull, Asia bear. In this scenario, China smoothly converges
towards the living standards of a still expanding West, without
interruption, over the course of the twenty-first century. However,
the other economies of emerging Asia, including India, stall at middle
income levels.
3. China bear, Asia bull. In this scenario, China stalls at middle
income level, while the rest of emerging Asia, including India,
smoothly converges towards the living standards of a still expanding
West, without interruption, over the full course of the twenty-first
century.
4. Emerging Asia bear. In this scenario, emerging Asia stalls at a
middle income level en masse. There are no exceptions. The West
expands on the trajectory defined for it in the Blue Sky scenario.
5. Grey skies for the West. In this scenario the economies of emerging
Asia smoothly converge towards the living standards of a struggling
West. In other words, emerging Asia catches up in a relative sense,
but the bar is substantially lower than in the first four scenarios.
The Blue Sky scenario is the province of the optimist. Here emerging Asia
transits the middle income phase of their development without disruption,
inexorably closing in on a living standard three quarters of that enjoyed by
the USA. Once that point is reached in each jurisdiction, their catch-up

phase concludes and they move forward at the same rate as the global
frontier can be pushed out. Under these very generous assumptions, many
of the major economies of emerging Asia will reach 75% of US income per
capita before the end of this century (China in 2068; South Korea in 2019;
Indonesia and Malaysia in 2100) while many others (India, Vietnam and
Thailand) have that target within their grasp in the early part of the twentysecond century.

Scenario 1: blue sky

0.4 % of output

% of output
Ja pan

AU /C A/NZ

R ussia

Bra zil

So uth Ko rea

Other ASEAN

0.4

Ind one sia

0.3
0.2

0.3

China

India

0.2
USA

0.1

Develop ed Europe

0.1

Sou rces: IMF, au thor calcu la ti ons.

0.0
1994 2004 2014 2024 2034 2044 2054 2064 2074 2084 2094

0.0

The China bull, Asia bear scenario describes a world where the most
myopic Sinophiles are justified in their present optimism. The Chinese
economy follows the same path mapped out for it in the Blue Sky scenario,
whereas its regional neighbours find themselves unable to advance beyond
middle income levels. Under these parameters, China is the largest economy
in the world from 2016 onwards. Its share of activity will peak around one
third at mid century and it will still comprise around 27% at 2100, despite its
demographic challenges. The USA finishes the century with a slightly larger
economy than India under these conditions. It is also worthy of note that
the action of restraining growth in emerging Asia (but not in the non-Asian
emerging markets) pushes Indonesia outside the top five economies in 2100.
This is the only scenario in this study where that is the case.

Scenario 2: China bull, Asia bear

0.4 % of output

% of output
Japan

AU/CA/NZ

Russia

Brazil

South Korea

Other ASEAN

0.4

Indonesia

0.3

0.3

China
USA

0.2

0.2

India
Developed Europe

0.1

0.1

Sources: IMF, author calculations.

0.0
1994 2004 2014 2024 2034 2044 2054 2064 2074 2084 2094

0.0

The China bear, Asia bull scenario is one for the myopic China sceptics
and the demographically inclined bulls. China is prevented from ascending
beyond middle income levels in this scenario, with its catch-up impetus
halted around two-fifths of US levels, which means it will cease to grow
faster than the US from approximately 2030. The other emerging Asian
economies are left free to trace the paths laid out in the Blue Sky scenario.!

Scenario 3: China bear, Asia bull

0.4 % of output

% of output
Japan

AU/CA/NZ

Russia

Brazil

South Korea

Other ASEAN

0.4

Indonesia

0.3
USA

0.3

China
India

0.2

0.2

0.1

Developed Europe

0.1

Sources: IMF, author calculations.

0.0
1994 2004 2014 2024 2034 2044 2054 2064 2074 2084 2094

0.0

The scale arithmetic here is simple and is particularly potent in the third
quarter of the century: emerging Asia ex China grows swiftly in per capita
terms while still enjoying a growing population. Simultaneously, China
grows like a mature economy while absorbing the negative scale factor of a
declining population of working age. That means a massive shift in the share
of global activity that is conducted in these jurisdictions. Earth-shattering
fact: under this set of conditions, Indias economy would be three times as
large as Chinas in 2100.

Scenario 4: Emerging Asia bear

0.4 % of output

% of output
Japan

AU/CA/NZ

Russia

Brazil

South Korea

Other ASEAN

0.4

Indonesia

0.3
USA

0.3

China
India

0.2

0.2
Developed Europe

0.1

0.1
Sources: IMF, author calculations.

0.0
1994 2004 2014 2024 2034 2044 2054 2064 2074 2084 2094

0.0

The emerging Asia bear scenario takes the trajectory for Chinese
economic growth from scenario 3 (China bear) and the trajectory for other
emerging Asian economies from scenario 2 (Asia bear). All emerging Asian
economies will see their catch-up efforts stall at living standards between
one quarter and one half of that enjoyed by the USA in 2100. The US share
of global activity traces a flattened U shape over the course of the century,
bottoming in the 2040s and rebounding close to its current share by 2100.
Chinas abruptly halted catch-up allows the tortoise of Developed Europe
to pass the Chinese hare in the last decade of the century. So a poor
performance by the East would be sufficient to allow the West to rebound
to a reasonably close facsimile of its current relative position in the long run.
The Grey Skies for the West scenario holds back the growth in developed
country living standards while simultaneously allowing Emerging Asia to

catch up on a relative trajectory not far removed from the Blue Sky scenario.
This is of course a lesser feat than if the West was flourishing and is thus
associated with lower absolute living standards for all. This scenario is
probably most attractive to those who see the present problems of private
and public indebtedness in the West as a major impediment to future
prosperity. Those who see an end to the exorbitant privilege associated
with the US role as the provider of the global reserve currency and the
benchmark risk free asset; and a messy outcome (from an economic
perspective at least) for the European project, should take particular note
of the outcomes of this scenario. It is far from a worst possible case of
course, but it does represent a century of diminishing expectations for those
who did so well in the three that preceded it.

Scenario 5: Grey skies for the West

0.4 % of output

% of output
Japan

AU/CA/NZ

Russia

Brazil

South Korea

Other ASEAN

0.4

Indonesia

0.3
0.2
0.1

China

India

Sources: IMF,
author calculations.

0.3
0.2

USA

Developed Europe

0.0
1994 2004 2014 2024 2034 2044 2054 2064 2074 2084 2094

0.1
0.0

Of course, theoretically the analysis need not end with the discrete
outcomes outlined above. By assigning probabilities to each of the basic
scenarios, any number of composite scenarios can be calculated from the
raw materials as a weighted average. However, the scenarios have not been
designed with a view to their being manipulated in this fashion. At this point
in time the author would not recommend going too far down that path,
although it may yet be a possible future avenue for developing the concept
from the general to the bespoke.

Assessing the scenarios in the context of the US-Australia Alliance.

The most important themes and observations arising from the scenario
work from the perspective of the US-Australia Alliance are arguably the
following.
1. China will be the worlds largest economy for most of the time
between 2016 and mid century in every scenario, even the most
pessimistic. However, it finishes the century at number one in just
one of the five scenarios (China bull, Asia bear), reaching 2100 in
fourth place twice and second place twice. So Chinas time in the sun
is not very distant, and its ascent to the number one position in
economic scale is unstoppable, but in the second half of the century it
will be losing ground to others under most sets of conditions that do
not include stagnation elsewhere in Asia. Chinas moment as a
dominant power without a near challenger in economic scale will
reach its zenith circa 2040.
2. India is the largest economy in the world in 2100 in three of the five
scenarios and is a close second in another two. In four out of five
scenarios India spends at least some time as the worlds largest
economy. Indias demographic profile is starkly different to Chinas.
This creates an enormous edge for India in terms of the growth of
market size once the second half of the century gets under way. Any
vision of the world economy in the long run, and of the security
architecture that will evolve in the region, needs to have a very well
defined position on Indias preferences in the matter.
3. The scenario that produces a world economic structure most
consistent with a balance of power scenario (between the USA,
Developed Europe, China and India) is one where all the major
emerging Asian economies stall around middle income levels. This is
also the scenario where the USA rallies back to number one by
centurys end after falling behind in its middle decades. This potential
future offers up some fascinating areas of speculation on the global
financial architecture, socio-political developments in China and the
relevance of middle powers in a century of delicate economic
equipoise. It is also probably the one that would present the fewest
challenges to the status quo position regarding the US-Australia
Alliance. This scenario also highlights that for purposes of internal

consistency one should not be bullish on emerging Asian economic

growth in the long run and simultaneously a believer that an evenly
balanced multi-polar structure will emerge.
4. Developed Europe finishes the century as the worlds third or fourth
largest economy in each scenario, indicating that it will remain
economically relevant even in the face of the Asian ascent. The
challenges presently facing the European economy are gigantic. But
so is the regions current global footprint, and even consistent growth
under-performance relative to the US in the coming decades will add
considerable increments to global output each and every year. And
the demographics of the total region3 make interesting reading, with
the drag on the working age population from ageing beginning to
moderate from mid century, and turning back to growth by centurys
end. Many may wish to simplify matters in the Asian Century by
writing off the European economy as a unit of relevance. The data
says that would be a dangerous abstraction. For instance, based on
the scenarios presented here, it is the Japanese yen and the Great
British Pound that will be removed from the IMFs SDR (special
drawing rights) currency basket4 to eventually make way for the
Chinese yuan and the Indian rupee not the euro. Nor would the
euro be asked to give way to the Russian rouble5, the Indonesian
rupiah or the Brazilian real.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
3!For!the!purposes!of!this!study,!the!UNs!demographic!projections!for!the!sum!of!

Western,!Northern!and!Southern!Europe!have!been!used!to!proxy!Developed!
Europe.!
4!The!IMF!special!drawing!rights!currency!basket!is!an!accounting!unit!
composed!of!the!four!currencies!that!are!perceived!to!play!the!most!important!
roles!in!the!global!system,!based!on!factors!such!as!usage!in!international!trade!
and!shares!of!global!reserve!holdings.!The!present!weights!and!composition,!
which!have!prevailed!since!January!1,!2011,!are!the!US!dollar!(41.9%)!the!euro!
(37.4%)!the!Japanese!yen!(9.4%)!and!the!Great!British!Pound!(11.3%).!The!next!
re_weighting!is!due!in!2015.!
5!Russias!national!currency!tends!to!be!spelt!ruble!in!the!United!States!and!
rouble!elsewhere.!The!Oxford!English!Dictionary!agrees!with!the!latter!
spelling.!Chinas!national!currency!is!the!renmimbi!(Peoples!currency.!
abbreviation!RMB)!the!basic!unit!of!which!is!the!yuan!(abbreviation!CNY).!In!
practice,!the!terms!are!interchangeable,!and!monetary!amounts!may!be!rendered!
as!either!RMB!or!CNY,!although!the!formal!bilateral!currency!code!is!always!
quoted!USD/CNY.!To!confuse!matters!further,!official!economic!data!is!generally!
presented!by!the!National!Bureau!of!Statistics!in!units!of!RMB.!!

5. While the Japanese will remain a wealthy people, their economys size
is surpassed in all scenarios by Indonesia, in most scenarios by Brazil
and Russia, and on a single occasion each by Canada and the
Philippines. The Japanese economy surpassed West Germany in the
late 1960s and the USSR in the 1980s to become the worlds second
largest national economy. It ceded that mantle to China in the first
decade of the twenty first century, and it ceded the number three
position to India soon after. It will not re-ascend such heights again.
6. No economy outside the top four will comprise more than 6.1% of
world output (a relative position equivalent to China circa 1996) in
any scenario. What is notable outside the top four is that Indonesia
finishes the century as number five in every scenario but one, arguing
that the widely used BRIC grouping of countries is not a particularly
useful unit for long run analysis. Its window of relevance will prove
quite short. These scenarios highlight that not only are China and
India in a very different league to Brazil and Russia, but also that
Indonesia will be a bigger economic factor than either of the latter
two powers. Given Indonesias proximity to Australia, and its
guarded relationship with both the US and China, this is of course a
particularly relevant point for any considered discussion of the
Alliance.
7. The scenarios draw out the stark differences in demographics profiles
as projected by the United Nations - across the major economies.
Older societies (Japan, South Korea, Developed Europe, Russia,
China) with contracting working age populations in the second half
of the century fall away appreciably in relative economic scale. Young
societies (India, Indonesia, the Philippines) with growing working age
populations in the second half of the century forge ahead.
Demographics are not destiny of course and overt reliance on them
to drive dynamic analyses is a dangerous occupation. However, in a
century where the demographic trajectories of groups of major
powers are going to be opposite in sign, the implications for
economic scale should not be under-estimated.
8. Weak growth in the advanced countries, particular for the frontier
defining US, would be very damaging for absolute global living
standards in the long run. Weak growth in the emerging world would
keep the West in the game from a scale perspective throughout the
century, but the trade off is a major loss of global prosperity. That

could serve to destabilise nations internally, precipitating

unpredictable political responses. As a wealthy economy, Australia
has a larger vested interest in the global productivity frontier being
extended continually than an emerging economy with decades of
catch-up ahead of it. In terms of absolute global living standards,
scenarios 4 and 5 produce similar low lying outcomes. Relative to the
blue sky scenario, some $240 trillion of potential purchasing power is
foregone at the global level in 2100 (circa 60% of scenario 4 and 5
average 2100 GDP), which equates to a loss of $22,000 per head.
Narrowing these results down still further, the major Alliance relevant
outcomes are
1. India is the most likely nation to conclude the century as the
unchallenged number one in terms of economic scale. If India is not
#1, that position will be taken by either China or the US, an
inconveniently ambiguous result.
2. The first half of the century is Chinas: the second half is most
unlikely to be Chinas, although it is not impossible.
3. The US is not going to fade into obscurity as populous Asian
economies rise in scale. Neither is Europe. But it will take a wholesale
stagnation in Asia a ubiquitous inability to avoid the middle income
trap - for the US to be in position to re-assert its economic primacy.
4. Indonesia Australias near neighbour is inarguably the third most
important emerging market behind India and China in terms of its
projected long run strategic economic weight. Put another way,
Indonesia may be the one country in the region able to graduate from
middle power status.
5. If emerging Asian economies stall en masse at the middle income level,
then a four way balance of global economic power is the likely
outcome, with the North Atlantic on the ascent at centurys end. This
point follows 3, developing the import of the Asian bear scenario
further. It is vital to reiterate the opposite side of this observation:
concepts of a multi-polar balance of power and bullish long run views
on growth in emerging Asia are not compatible with each other over
the full course of the century.
6. Japan is going to lag considerably behind both its advanced peers and
its emerging neighbours. Its long run destiny may be that it becomes
another middle power, joining current examples Australia, Canada

and South Korea, and future examples the Philippines and Vietnam.
Proponents of a Chinese containment strategy would do well to think
hard whether (or for how long) Japan would remain an effective
vertex in such an alignment.
7. Energy spent considering the rise of Russia and Brazil should not
come at the expense of time considering the top five economies in
the sample. Those studying the Alliance should ignore the BRIC
categorisation as a useful analytical grouping.
A risk averse reading of these results from the Australian side would argue
for a consolidation of its Alliance structure, as the US will remain a major
force irrespective of developments elsewhere. However, moving beyond
this point, clarity on which of the five scenarios is going to be closer to the
truth will take a considerable time to emerge: certainly clarity on the shape
of the world economy in the second half of this century will post date the
working careers of mid-level diplomats and security analysts let alone the
current leading thinkers and decision makers. Even if Australia were to
prepare now to move away from the status quo, which is clearly not its
preference, it would still not know exactly where to align itself even if the
criteria for a change of alignment were to be carefully defined in economic
terms. All that can be said with certainty is that India will have to be a
central element in future strategic calculus; Indonesia will become even
more important; the Chinese sun will dominate the heavens in the first half
of this century and it will be very difficult not to be dazzled, projected
second half decline notwithstanding; Japans strategic decline appears
terminal; while European decline may have been greatly exaggerated.
Considering these results from the US side, the scenarios have put forward a
useful rule of thumb on relative economic weight. If either of China or
India navigates the middle income phase of its development successfully,
they will surpass the US in size and will retain that advantage in scale. If they
fall into the middle income trap, the US will retain a size advantage. This is
an example where a little bit of knowledge might be construed as dangerous.
Armed with this information, should the US actively work to inhibit Chinese
and Indian economic growth to retain its relative position? Armed with this
information, how are the Chinese and Indian authorities to overcome their
suspicion of Western advice; their perceptions of discrimination; their fear
of technological and energy blockades? One hopes that the vast amount of
foregone wealth indicated by the difference between projected world

economic activity in 2100 under the Blue Sky scenario and in the more
pessimistic scenarios 4 and 5 is a sufficiently valuable hostage to prevent
negative outcomes brought about by a nave reading of the results.
!

Appendix one: individual scenario details

The two measures that command principal attention are relative living
standards assumptions on the progress of which define the scenarios - and
relative economic scale, which is our ultimate interest in terms of assessing
longer run security questions. These two measures are presented in table
form for each nation/region for which individual trajectories have been
defined, at various time stamps between 2012 and 2100. The upper panel is
for living standards (assumptions) and the lower panel is for relative shares
of activity (outcomes).
!

Scenario 1: Blue sky

Income per head, % of US

2012

2020

2030

2040

2050

2070

2100

United States

100

100

100

100

100

100

100

Japan

71

68

68

69

70

72

75

Developed Europe

73

71

71

72

74

76

79

China

19

31

52

68

73

75

75

India

11

19

29

41

64

75

Russia

36

40

50

60

67

73

75

Brazil

25

30

41

52

62

72

75

South Korea

70

76

84

85

85

85

85

Indonesia

10

14

21

30

39

58

71

Thailand

20

24

33

40

47

62

73

Malaysia

34

39

49

54

60

71

75

Philippines

11

16

23

30

45

56

Vietnam

11

18

27

38

59

71

Canada

84

81

80

82

84

88

94

Australia

85

85

87

88

89

91

94

New Zealand

59

58

59

62

66

73

79

Share of output, % of world

2012

2020

2030

2040

2050

2070

2100

United States

23.6

20.6

17.2

15.2

14.0

13.1

13.7

Japan

6.9

5.5

4.3

3.4

2.9

2.3

2.1

Developed Europe

24.6

20.2

16.2

13.9

12.5

10.8

10.7

China

19.0

26.1

32.1

33.1

31.3

25.7

20.3

India

7.4

9.5

12.5

16.2

20.6

28.2

31.2

Russia

3.8

3.5

3.0

2.8

2.7

2.5

2.3

Brazil

3.7

3.8

4.0

4.1

4.3

4.3

3.9

0.0

0.0

0.0

0.0

0.0

0.0

0.0

South Korea

2.5

2.3

1.9

1.6

1.4

1.1

0.9

Indonesia

1.8

2.2

2.6

3.0

3.4

4.2

5.5

Thailand

1.0

1.0

1.1

1.0

1.0

1.1

1.2

Malaysia

0.7

0.8

0.8

0.8

0.8

0.9

1.0

Philippines

0.6

0.7

0.9

1.1

1.4

1.9

2.9

Vietnam

0.5

0.6

0.8

1.0

1.2

1.5

1.7

Canada

2.2

1.9

1.5

1.4

1.3

1.2

1.3

Australia

1.5

1.3

1.2

1.0

1.0

0.9

1.0

New Zealand

0.2

0.2

0.1

0.1

0.1

0.1

0.1

Source: Author calculations except for 2012, which are IMF estimates.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are
reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Scenario 2: China bull, Asia bear

Income per head, % of US

2012

2020

2030

2040

2050

2070

2100

United States

100

100

100

100

100

100

100

Japan

71

68

70

71

72

74

77

Developed Europe

73

71

73

74

76

78

81

China

19

31

50

63

70

75

75

India

11

18

25

28

29

30

Russia

36

40

47

55

62

71

75

Brazil

25

30

39

48

56

69

75

South Korea

70

76

79

80

80

80

80

Indonesia

10

14

20

26

29

30

30

Thailand

20

24

31

36

38

39

39

Malaysia

34

39

46

49

50

50

50

Philippines

11

15

20

22

23

24

Vietnam

11

17

24

26

28

30

Canada

84

81

80

82

84

88

94

Australia

85

85

87

88

89

91

94

New Zealand

59

58

59

62

66

73

79

Share of output, % of world

2012

2020

2030

2040

2050

2070

2100

United States

23.6

20.6

17.2

15.4

15.0

15.9

18.4

Japan

6.9

5.5

4.3

3.4

3.1

2.8

2.8

Developed Europe

24.6

20.2

16.2

14.0

13.3

13.1

14.4

China

19.0

26.1

32.1

33.5

33.4

31.2

27.2

India

7.4

9.5

12.5

15.6

16.7

17.5

17.2

Russia

3.8

3.5

3.0

2.9

2.9

3.0

3.1

Brazil

3.7

3.8

4.0

4.2

4.6

5.3

5.2

South Korea

2.5

2.3

1.9

1.6

1.5

1.3

1.2

Indonesia

1.8

2.2

2.6

3.0

3.1

3.1

2.9

Thailand

1.0

1.0

1.1

1.0

1.0

0.9

0.9

Malaysia

0.7

0.8

0.8

0.8

0.8

0.8

0.9

Philippines

0.6

0.7

0.9

1.1

1.2

1.4

1.6

Vietnam

0.5

0.6

0.8

1.0

1.0

1.0

1.0

Canada

2.2

1.9

1.5

1.4

1.4

1.5

1.8

Australia

1.5

1.3

1.2

1.1

1.0

1.1

1.3

New Zealand

0.2

0.2

0.1

0.1

0.1

0.2

0.2

Source: Author calculations except for 2012, which are IMF estimates.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are
reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Scenario 3: China bear, Asia bull

Income per head, % of US

2012

2020

2030

2040

2050

2070

2100

United States

100

100

100

100

100

100

100

Japan

71

68

70

71

72

74

77

Developed Europe

73

71

73

74

76

78

81

China

19

29

38

38

38

38

38

India

11

18

26

37

57

72

Russia

36

40

47

55

62

71

75

Brazil

25

30

39

48

56

69

75

South Korea

70

76

79

82

83

85

84

Indonesia

10

14

20

27

35

50

75

Thailand

20

24

31

37

42

55

75

Malaysia

34

39

46

51

55

65

74

Philippines

11

15

21

27

39

59

Vietnam

10

15

23

31

49

69

Canada

84

81

80

82

84

88

94

Australia

85

85

87

88

89

91

94

New Zealand

59

58

59

62

66

73

79

Share of output, % of world

2012

2020

2030

2040

2050

2070

2100

United States

23.6

21.1

18.6

17.5

16.4

15.0

15.2

Japan

6.9

5.6

4.6

3.9

3.4

2.7

2.3

Developed Europe

24.6

20.7

17.6

15.9

14.6

12.4

11.9

China

19.0

24.4

26.5

23.2

20.0

15.0

11.5

India

7.4

9.7

13.5

18.7

24.0

32.3

34.7

Russia

3.8

3.5

3.3

3.3

3.1

2.8

2.6

Brazil

3.7

3.8

4.3

4.8

5.0

5.0

4.3

South Korea

2.5

2.4

2.1

1.9

1.7

1.3

1.0

Indonesia

1.8

2.2

2.8

3.5

4.0

4.8

6.1

Thailand

1.0

1.1

1.1

1.2

1.2

1.2

1.4

Malaysia

0.7

0.8

0.9

0.9

0.9

1.0

1.1

Philippines

0.6

0.7

0.9

1.3

1.6

2.2

3.2

Vietnam

0.5

0.6

0.7

1.0

1.3

1.7

1.9

Canada

2.2

1.9

1.7

1.6

1.5

1.4

1.5

Australia

1.5

1.3

1.3

1.2

1.1

1.1

1.1

New Zealand

0.2

0.2

0.2

0.2

0.2

0.2

0.2

Source: Author calculations except for 2012, which are IMF estimates.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are
reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Scenario 4: Asia bear

Income per head, % of US

2012

2020

2030

2040

2050

2070

2100

United States

100

100

100

100

100

100

100

Japan

71

68

70

71

72

74

77

Developed Europe

73

71

73

74

76

78

81

China

19

29

38

38

38

38

38

India

11

18

25

28

29

30

Russia

36

40

47

48

48

48

48

Brazil

25

30

39

40

40

40

40

South Korea

70

76

79

80

80

80

80

Indonesia

10

14

20

26

29

30

30

Thailand

20

24

31

36

38

39

39

Malaysia

34

39

46

49

50

50

50

Philippines

11

15

20

22

23

24

Vietnam

10

15

21

24

26

27

Canada

84

81

80

82

84

88

94

Australia

85

85

87

88

89

91

94

New Zealand

59

58

59

62

66

73

79

Share of output, % of world

2012

2020

2030

2040

2050

2070

2100

United States

23.6

21.1

18.6

18.0

18.1

19.5

22.1

Japan

6.9

5.6

4.6

4.0

3.7

3.5

3.4

Developed Europe

24.6

20.7

17.6

16.4

16.1

16.1

17.3

China

19.0

24.4

26.5

23.8

22.1

19.4

16.7

India

7.4

9.7

13.5

18.2

20.2

21.5

20.8

Russia

3.8

3.5

3.3

2.9

2.7

2.5

2.4

Brazil

3.7

3.8

4.3

4.1

3.9

3.7

3.3

South Korea

2.5

2.4

2.1

1.9

1.8

1.6

1.4

Indonesia

1.8

2.2

2.8

3.4

3.7

3.7

3.5

Thailand

1.0

1.1

1.1

1.2

1.2

1.1

1.0

Malaysia

0.7

0.8

0.9

0.9

0.9

1.0

1.1

Philippines

0.6

0.7

0.9

1.3

1.4

1.7

1.9

Vietnam

0.5

0.6

0.7

1.0

1.1

1.1

1.1

Canada

2.2

1.9

1.7

1.6

1.7

1.8

2.1

Australia

1.5

1.3

1.3

1.2

1.3

1.4

1.6

New Zealand

0.2

0.2

0.2

0.2

0.2

0.2

0.2

Source: Author calculations except for 2012, which are IMF estimates.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are
reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Scenario 5: Grey skies for the West

Income per head, % of US

2012

2020

2030

2040

2050

2070

2100

United States

100

100

100

100

100

100

100

Japan

71

68

68

69

70

72

75

Developed Europe

73

71

71

72

74

76

79

China

19

31

52

68

73

75

75

India

11

19

29

41

64

75

Russia

36

40

50

60

67

73

75

Brazil

25

30

41

52

62

72

75

South Korea

70

76

84

85

85

85

85

Indonesia

10

14

21

30

39

58

71

Thailand

20

24

33

40

47

62

73

Malaysia

34

39

49

54

60

71

75

Philippines

11

16

23

30

45

56

Vietnam

11

18

27

38

59

71

Canada

84

81

80

82

84

88

94

Australia

85

85

87

88

89

91

94

New Zealand

59

58

59

62

66

73

79

Share of output, % of world

2012

2020

2030

2040

2050

2070

2100

United States

23.6

20.6

16.7

14.5

13.3

12.5

13.6

Japan

6.9

5.5

4.1

3.2

2.7

2.2

2.0

Developed Europe

24.6

20.1

15.4

12.8

11.6

10.1

10.4

China

19.0

26.1

32.9

34.0

31.2

24.6

20.2

India

7.4

9.5

12.8

17.0

22.0

30.0

32.4

Russia

3.8

3.5

3.1

2.9

2.7

2.4

2.3

Brazil

3.7

3.8

4.1

4.3

4.5

4.3

3.9

South Korea

2.5

2.3

1.9

1.6

1.4

1.1

0.9

Indonesia

1.8

2.2

2.7

3.2

3.7

4.7

5.2

Thailand

1.0

1.0

1.1

1.1

1.1

1.2

1.2

Malaysia

0.7

0.8

0.8

0.8

0.8

0.9

1.0

Philippines

0.6

0.7

0.9

1.2

1.5

2.1

2.8

Vietnam

0.5

0.6

0.8

1.0

1.3

1.7

1.7

Canada

2.2

1.9

1.5

1.3

1.2

1.2

1.3

Australia

1.5

1.3

1.1

1.0

0.9

0.9

1.0

New Zealand

0.2

0.2

0.1

0.1

0.1

0.1

0.1

Source: Author calculations except for 2012, which are IMF estimates.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are
reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.