Chinas economy to overtake US in next four years, says OECD

China's economy will be biggest in world by end of 2016, says leading international thinktank

China will overtake the US in the next four years to become the largest economy in the world, says a leading international thinktank.

The Paris-based Organisation for Economic Co-operation and Development (OECD) said China's economy will be larger than the combined economies of the eurozone countries by the end of this year, and will overtake the US by the end of 2016.

Global GDP will grow by 3% a year over the next 50 years, it says, but there will be large variations between countries and regions. By 2025, it says the combined GDP of China and India will be bigger than that of France, Germany, Italy, Japan, UK, US and Canada put together. Asa Johansson, senior economist at the OECD, said: "It is quite a shift in the balance of economic power we are going to see in the future."

Inequalities will persist, even though people in the poorest countries will see their income more than quadruple by 2060, with those in China and India seeing a more than a seven-fold increase. By 2060, the OECD says living standards in the emerging countries will still only be 25%-60% of the level enjoyed by those in the US.

Global imbalances, which created the conditions for the crash of 2007, will continue to widen and reach pre-crisis levels by 2030, it said. In the short term, this is largely a cyclical effect of the financial crisis. So the US, which had a large budget deficit before the crisis, experienced a sharper downturn than China, which had a budget surplus.

The OECD warned that rising imbalances could undermine growth. But, it said, if countries undertook more ambitious reforms with regards to labour and production, they could be reduced. Johansson said these could address how easy it was to hire and fire employees, or regulations around starting up a business and restrictions over foreign business investment.

Developing economies to eclipse west by 2060, OECD forecasts

Dramatic shift in balance of economic power over next five decades analysed in new OECD model

Looking to 2060: A Global Vision of Long-Term Growth, from the OECD

China, India and the rest of the developing world will eclipse the west in a dramatic shift in the balance of economic power over the next 50 years, according to research by the Organisation for Economic Co-operation and Development (OECD).

The next five decades will see major changes in country shares in global output. The Paris-based thinktank's Looking to 2060: Long-Term Global Growth Prospects report uses a new economic model which forecasts that China will overtake the eurozone in 2012 and the US within the next four years to become the largest economy in the world.

India is in the process of overtaking Japan and is forecast to pass the eurozone in about 20 years.

The chart below shows the latest (2011) estimates of the composition of world gross domestic product (GDP). The current output of China (17%) and India (6.6%) totals around a third of that of the 34 developed economies that make up the OECD (64.7%).

But by 2060, as the chart below shows, the combined GDP of China (27.8%) and India (18.2%) will be larger than that of the OECD – and the total output of China, India and the rest of the developing world (57.7%) will be greater than that of developed OECD and non-OECD countries (42.3%).

Developing world growth will continue to outpace the OECD, but the difference will narrow over coming decades. From more than 7% a year over the last decade, non-OECD growth will fall to around 5% in the 2020s and to about half that by the 2050s. Trend growth for the OECD is forecast to be 1.75% to 2.25% a year.

Until 2020, China will have the highest growth rate among the countries included in the report, but will then be overtaken by both India and Indonesia.