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Economic power shift poses Rio + 20 challenge, says PwC

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London: Dramatic shifts in global economic power pose sustainability challenges for Rio + 20, the United National conference on sustainable development which got underway yesterday, according to new analysis by PwC which compares shares of world GDP for key global country groupings in 1992, 2012 and 2032.

  • Advanced economies accounted for around 64% of world GDP in 1992, but this has now fallen to only 50% and could be just 37% by 2032 according to PwC projections
  • Emerging and developing economies could therefore account for 63% of world GDP by 2032, which will also be reflected in their increasingly dominant role in global demand for energy and other finite natural resources.
  • This upward trend is being driven primarily by China, India and other developing Asian economies, whose share of world GDP has risen from just 11% in 1992 to 26% now and could reach around 37% by 2032 according to PwC. Brazil, Russia and other emerging economies outside Asia are also projected to grow significantly faster than the G7 over the next two decades.
  • While it is right that the rich developed economies continue to take a lead on sustainability, long term solutions to global issues like climate change and biodiversity can only come through concerted action that also includes the increasingly dominant emerging and developing economies, particularly but not only, the BRICs.

In the run up to Rio + 20, PwC has updated its long-term global economic growth model to compare shares of world GDP at purchasing power parities (PPPs) for key global country groupings in 1992, 2012 and 203.

Total world GDP is now just over $80 trillion — around twice what it was 20 years ago in real inflation-adjusted terms and about half what it could be in another 20 years' time. Developed economy output might only be around 2.4 times bigger in 2032 than in 1992. By contrast, developing economy output could be seven times larger in 2032 than it was in 1992.

John Hawksworth, Chief UK economist at PwC, commented, "The rich world still accounted for 64% of world GDP at the time of the original Rio conference in 1992, which made it natural that these countries should lead the way on global sustainability issues that were largely a legacy of their previous economic development.

"This was reflected in post-Rio initiatives such as the Kyoto Protocol, the quantified aspects of which focused on carbon emission reductions by advanced economies.

"But the rich world now accounts for only around half of world GDP and this will shrink further to only around 37% of world GDP in 20 years time according to our projections.

"These rich countries can and should still take a lead in areas like carbon emission reductions and providing financial and technological support for global sustainability initiatives.

"But, particularly after being badly weakened by the global financial crisis and now the Eurozone crisis, the advanced economies can no longer drive progress on this agenda by themselves at Rio + 20 or in the future.

"China, India, Brazil, Russia and other emerging economies have slowed a little recently, but this should only be a temporary cyclical adjustment: our long-term modelling work suggests that they are still likely to be the dominant players in world growth over the next two decades. Unless these emerging giants play their role alongside the richer nations, the world is not going to be able to get off its current unsustainable growth path in terms of energy consumption, greenhouse gas emissions and other natural resource use."

Malcolm Preston, global lead, PwC sustainability and climate change said, "The huge strides that many emerging economies have made in the twenty years since the Rio Earth Summit should be celebrated, but it also acts as a reality check for Rio — but also an ambition and a constraint for the proposed Sustainable Development Goals."

"The emergence of sizeable middle classes in developing nations is putting the resources of the world under pressure like never before."

"World output is roughly doubling in real terms every 20 years, but we've eaten into our global natural capital substantially over the same period. As we create more growth, are the right actions being taken to protect natural capital, and create the right kind of value?

"One of the most tangible things that could come out of Rio+20 is Natural Capital Accounting. We need this yardstick for both countries and companies to drive the action to replenish the planetary balance sheet, rather than fully depleting it.

"We can see why politicians might be preoccupied with other, perhaps more immediate problems. But business is waking up to the enormity of the challenges and, for many, the opportunity that this presents. While some may be cynical about the role of business in these global events, there is a growing recognition that these massive global challenges cannot be tackled without the private sector's firepower and buy in."

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