GDP: India and China to surpass G7 nations by 2025

While China's economy may very well outrace the combined euro zone by the end of this year, India is likely to jump over Japan's economy, according to a latest report by the Organization for Economic Cooperation and Development (OECD).

The report, titled "Looking to 2060: long-term global growth prospects", also predicted that the Asian pair will be bigger than the USA, Euro zone and Japan.

The Paris-based OECD, which is an elite-group of industrial democracies, predicted the outcomes on a hypothetical scenario rather than a firm projection in a bid to understand long-term trends in the global economy.

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The OECD said that the combined gross domestic product (GDP) of China and India was likely to exceed that of all the current Group of Seven (G7) rich economies by around 2025.

Already, in 2010, the two economies output was just less than half the G7's GDP.

The report, basing its projections on 2005's purchasing power parities (PPP), measured China and India to account for 28% and 11% respectively of the total output of 42 major economies by 2030.

Comparatively, US will be 18%, Euro Zone 12% and Japan 4%.

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The OECD sketched global growth of 3% a year over the next half-century, driven mostly by improvements in productivity and replenishment of human capital.

Asa Johansson, one of the authors of the report, said that although the report presents a hypothetical scenario instead of a firm projection, "The extent of the expected shift in economic power away from developed countries was striking."

Reuters reported that at market exchange rates, it will take emerging markets a bit longer to seize the crown - for example, Goldman Sachs reckons the BRICs quartet of Brazil, Russia, India and China will overtake the G7 by 2037.

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The report mentioned that till 2020, China will continue to have the highest growth rate from all the countries.

But around this time, it will be surpassed by India and Indonesia as its working-age population will continue to decline.

China's savings rate, which now exceeds 50% of GDP, is likely to plunge by no less than 40 percentage points by 2060, half of this drop due to ageing.

China still has a considerable start over India, through strong productivity growth and robust investments during the past decade.

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So, although the pair will grow seven times in the next five decades, China's per capita income will be 25% higher than the present US income in 2060, when India will still be at half the present US income.

Even under these circumstances, China will be just short of Spain and France and ahead of Italy.

The OECD said that globally current account imbalances will be back to pre-crisis levels by 2025-2030, potentially undermining growth in the absence of ambitious policy changes.

The OECD further assumed that the global financial crisis will have no permanent effect on trend growth rates.