There is a strong link between socio-economic development and materials use, including plastics, as materials are an important input for all production processes. This chapter presents the projections to 2060 for socio-economic trends underlying the Baseline scenario, including the evolution in regional populations, gross domestic product, the structure of the economy and production technologies. It also outlines key sources of uncertainty in the economic projections, modelling the impact of slower or faster recovery from the COVID-19 pandemic on economic and sectoral growth.
Global Plastics Outlook
Policy Scenarios to 2060
2. Economic projections to 2060
Abstract
Key messages
By 2060 in the Baseline scenario, the global population is projected to reach more than 10 billion people. Population is projected to increase more slowly than in the past: at an annual rate of 0.7% on average between 2019 and 2060, compared to 1.8% over the period 1980-2019. Despite a slow population growth rate in most regions, Sub-Saharan Africa will see its population grow at an annual rate of over 3%.
Gross domestic product (GDP) and living standards are projected to increase gradually in all countries. The GDP of most non-OECD countries is projected to grow faster than OECD countries, gradually converging with current OECD levels. The global economy will thus see major shifts across regions, with non-OECD Asian countries representing an increasingly large share of global economic output. Together, the People’s Republic of China (hereafter ‘China’), India and other non-OECD Asian countries will contribute almost half of global GDP in 2060.
The COVID-19 pandemic and government response measures caused a significant contraction of global gross domestic product (GDP) in 2020. Global GDP growth is projected to return to pre-COVID levels before the end of the decade, but GDP levels are likely to remain around 1-2% below the pre-COVID projection, depending on the speed of recovery.
The increased use of services in manufacturing and consumption (“servitisation”) will mean that the plastics sector will grow more slowly than overall economic activity. Plastics production represented 1.3% of the global economy in 2019, and this share is projected to slightly decline to 1.2% by 2060.
Changes in production technologies lead to a more efficient use of production inputs, including plastics. For instance, the inputs of plastics in the production of manufacturing products are projected to decline from 3% in 2019 to 2% in 2060 on average in both OECD and non-OECD countries.
This Baseline scenario reflects one possible pathway for economic growth, but is subject to uncertainty.
2.1. The global population is projected to increase to 10 billion by 2060, with the strongest growth in Sub-Saharan Africa
World population has been increasing in recent decades and is projected to continue to increase in the coming decades. The Baseline scenario projects global population to reach more than 10 billion people by 2060 (Figure 2.1), drawing on the “medium scenario” of the World Population Prospects (UN, 2017[1]) and the Eurostat projections for European countries (Eurostat, 2018[2]). The pace of population growth is projected to slow between 2019 and 2060, in contrast with the strong growth seen over the past 40 years. Over the next four decades (between 2019 and 2060), global population is projected to grow by 0.7% per year on average, compared to the annual growth rate of 1.4% over the period 1980-2019.
This slowdown in population growth applies to all countries. However, population growth trends will vary across countries. Some countries are projected to even face negative growth (many European countries, Japan, Korea, and China). At the other extreme, Sub-Saharan Africa (Other Africa in Figure 2.1) is projected to experience high population growth (over 3% per year over 2019-2060). As a result, more than 26% of world population in 2060 is projected to be in Sub-Saharan Africa, compared to 15% in 2019. In contrast, the OECD share shrinks from 18% in 2019 to 15% in 2060 (Figure 2.1).
Figure 2.1. The world population is projected to keep growing but at a slower pace
Source: Authors’ calculations based on (UN, 2017[1]), The World Population Prospects: 2017 Revision.
2.2. The engines of economic growth will gradually shift from China to other emerging economies in Asia and Africa
In the coming decades, the global population is not only projected to increase, but to also become wealthier on average. Living standards (measured as GDP per capita) are projected to increase over the entire period, with most countries gradually converging towards OECD levels (Figure 2.2).1 Global income per capita is projected to reach the OECD 2019 levels by 2060 (USD 41 000). Despite the slower growth, average income in OECD countries more than doubles, from USD 41 000 in 2019 to USD 86 000 in 2060.
The improvements in living standards over the 2019-2060 period (blue bars in Figure 2.2) are projected to be greatest for emerging countries with current low levels of per-capita GDP, and especially for India. Countries that are fossil-fuel exporters, such as those in the Middle East and North Africa region and the “Eurasia” group, which includes the Russian Federation (hereafter ‘Russia’), are projected to grow less rapidly than the average non-OECD country, as fossil fuel revenues do not grow as rapidly as other contributing factors to GDP. In contrast, European countries that have recently joined the European Union (EU), especially those labelled as “Other EU” (including for instance Romania and Bulgaria), are projected to grow rapidly. Living standards in developing economies will still be far from those of OECD countries at the end of the time horizon, despite the convergence process, but they will come close to 2019 levels, with the exception of Sub-Saharan Africa (“Other Africa”; see Table A A.2 in Annex A for a list of the regions used in ENV-Linkages).
Figure 2.2. Living standards are projected to increase, especially in lower-income regions
Note: GDP per capita is presented in USD, using 2014 purchasing power parity (PPP).
Source: ENV-Growth model (OECD Environment Directorate) and OECD Economics Department (Guillemette and Turner, 2018[3]), The Long View: Scenarios for the World Economy to 2060, https://doi.org/10.1787/b4f4e03e-en.
GDP increases in all regions (Figure 2.3), even in countries where population is declining, since the growth of GDP per capita has a larger impact than population changes. Global GDP is projected to more than triple between 2019 and 2060, from USD 131 trillion to USD 418 trillion.
In 2020, the COVID-19 pandemic caused a significant contraction in global GDP, with the annual global GDP growth rate dropping from around +4% in 2019 to -4% in 2020 (Dellink et al., 2021[4]). Increased unemployment, reduced labour productivity, a collapse in demand for certain commodities and higher trade costs all depressed economic activity. In 2021, many countries observe a rebound effect. In the longer run, while GDP growth is projected to return to the levels expected before the COVID pandemic, GDP levels are not.2
The Baseline scenario projects the global GDP growth rate to slow down and stabilise at about 2.5% after 2030. While India and large parts of Sub-Saharan Africa are projected to record high growth rates and then become important drivers of world growth in the 2019-2040 period, the projected slowdown of the Chinese economy after 2025 dominates. From around 2040, the most dynamic regions are projected to be emerging economies in Asia (India and Other non-OECD Asia in Figure 2.3).
Figure 2.3. Global GDP is projected to grow more slowly, driven by emerging economies
Source: OECD ENV-Linkages model; based on short-term forecasts by OECD Economics Department (OECD, 2020[5]) and International Monetary Fund (IMF, 2020[6]).
The share of OECD countries in global GDP in 2060 is projected to fall to 31% from 44% in 2019 (Figure 2.4), since growth rates in non-OECD countries are higher. The importance of the non-OECD Asian countries will increase at the global level (increasing from 37% in 2019 to 48% in 2060). While China will maintain its importance (with a global share of GDP decreasing from 20% in 2019 to 18% in 2060), India and some fast-growing economies in the “Other non-OECD Asia” region - specifically Indonesia and the Philippines - will represent a much larger share of the global economy. In particular, the strong economic growth in India will result in its share of global GDP increasing from 8% in 2019 to 18% in 2060. Within other regions, some countries will become increasingly important in driving economic growth: Egypt in the Middle East & North Africa region, Nigeria in Sub-Saharan Africa (Other Africa) and Peru in Latin America.
Figure 2.4. The regional distribution of GDP will change in the following decades
Source: OECD ENV-Linkages model; based on short-term forecasts by OECD Economics Department (OECD, 2020[5]) and International Monetary Fund (IMF, 2020[6]).
2.2.1. Many uncertainties could affect economic projections
Projecting economic growth is subject to uncertainties. The model is based on long-term projections of key socio-economic drivers, all of which are uncertain. Most notably, future population growth and the speed of convergence across countries can affect long-run economic projections (Box 2.1). Furthermore, while the Baseline scenario takes into account the effects of the COVID pandemic, the longer-term effects are still largely unknown. For instance, a slower recovery would imply slower growth in the long-run (Dellink et al., 2021[4]), as explored in Box 2.2. Finally, other uncertain events that can affect regional and global growth are difficult to include in the Baseline. For instance, the recent war in Ukraine will certainly affect regional and global growth (Box 2.3). Nevertheless, due to the high uncertainty of the current situation and in its developments in the coming years, the Ukraine war is not included in the ENV-Linkages economic baseline.
Box 2.1. Uncertainties in projections need to be kept in mind
Projections are not predictions. Models work with a stylised version of reality that omits a long list of factors that can influence future economic and environmental outcomes, such as natural disasters, domestic conflicts and international wars. Several uncertainties need to be kept in mind when evaluating the projections presented in this report. First, the Baseline scenario is carefully calibrated to reflect plausible long-term developments, but represents only one possible future pathway. One key source of uncertainty is the development of the socio-economic projections. As highlighted in OECD (2019[7]), changes in population and in the speed of income convergence across countries affect economic projections substantially (Figure 2.5).
Figure 2.5. GDP projections are subject to uncertainty
Note: This sensitivity analysis, updated from OECD (2019[7]), explores different assumptions about (i) the recovery from the COVID-19 pandemic, (ii) the speed of income convergence across countries, and (iii) population growth, considering the low and high population scenarios from the UN Population Prospects (2017[1]).
Source: OECD ENV-Linkages model.
Box 2.2. What if the global economy recovers more slowly from the pandemic?
The speed at which the global economy will recover from the COVID-19 pandemic is highly uncertain. Therefore, the impacts of the pandemic in the medium term cannot be quantified accurately. The Slow recovery” scenario explores the implications of a slower recovery from the pandemic, showing how GDP rebounds more slowly (Panel A in Figure 2.6). By 2040, the global economy is even further below pre-COVID projections compared to the main Baseline scenario (which includes COVID-19 impacts). Because the shocks simulated in the Slow recovery scenario are assumed to fade at half the speed of the Baseline scenario, the effect on economic activity lasts longer and remains twice as strong at least the coming two decades. There are also important differences between regions; the slower recovery is especially detrimental to the Asian economies, not least India (Panel B in Figure 2.6). Box 2.4 explores how a slower recovery might affect plastics production trends.
Figure 2.6. A slower recovery from COVID-19 implies lower GDP levels in the long-run than in the Baseline scenario
Note: The impacts of these shocks are assessed by comparing the Baseline projection with a pre-pandemic projection published in the Global Material Resources Outlook (OECD, 2019[7]).
Source: OECD ENV-Linkages model and Dellink et al. (2021[4]), “The long-term implications of the Covid-19 pandemic and recovery measures on environmental pressures: A quantitative exploration”, https://doi.org/10.1787/123dfd4f-en.
Box 2.3. The current war in Ukraine will affect economic growth at the global level
At the time of writing (April 2022) the conflict that started at the end of February 2022 in Ukraine is still ongoing. . In March 2022, the OECD Economic Department released an Interim Economic Outlook Report on Economic and Social Impacts and Policy Implications of the War in Ukraine (OECD, 2022[8]). This report highlights that the economic consequences will depend on the duration of the conflict and policy responses to the war, such as policy to ensure stable financial market conditions, fiscal support and mitigating the impact of energy price increases on consumers. The war will result in a drag on global growth and significant inflationary pressures.
The report estimates that global GDP growth could be reduced by 1% in the first year and global consumer price inflation could reach 2.5% in the same timeframe, alongside a deep recession in Russia. These estimates are based on the assumption that the commodity and financial market shocks seen in the first two weeks of the conflict remain for at least one year (OECD, 2022[8]).
The war and accompanying sanctions have caused disruptions on a global level given financial and business linkages. The rouble has decreased sharply, while the Central Bank of Russia’s interest rate has risen by 10.5 percentage points to 20%. Currency depreciations and risk premia are also occurring in emerging economies, and central and eastern European economies, particularly those with strong business ties to Russia before the conflict.
European economies, particularly those that share a border with Russia or Ukraine are hardest hit. This relates to the gas price rises in Europe and the business and energy ties with Russia and neighbouring countries. Other regions may be affected by the impact of weaker global demand and changes in household income and spending as a result of higher prices. For emerging-market economies, higher food and energy prices push up inflation more than advanced economies.
Other factors and potential shocks may intensify the adverse effects of the conflict and affect economic growth further, such as a cessation of energy exports from Russia to the EU, and further sanctions and boycotts.
While Russia and Ukraine only account for 2% of global GDP, both countries play a large role as major suppliers in a number of commodity markets. Russia and Ukraine account for 30% of global wheat exports; 20% of corn, mineral fertiliser and natural gas exports; and 11% of oil. There are also many supply chains that rely on Russia and Ukraine for metal exports and inert gasses. Ukraine and Russia also play a role in reserves of uranium. Many of these commodities have already seen a price rise since the onset of the war.
A complete stop to wheat exports from Ukraine and Russia would result in shortages in emerging-market and developing economies. In many economies in the Middle East, 75% of the wheat imports come from Ukraine and Russia. Alongside this, the disruption in fertiliser manufacturing risks putting agricultural supply under stress.
Alongside these direct impacts of the conflict, there may also be some longer-lasting impacts, including pressures for higher defence spending, changes to the structure of the energy markets, potential fragmentation of payment systems and changes in the currency composition of foreign exchange reserves.
Source: (OECD, 2022[8]), OECD Economic Outlook, Interim Report March 2022: Economic and Social Impacts and Policy Implications of the War in Ukraine, https://dx.doi.org/10.1787/4181d61b-en.
2.3. Services will represent an increasing share of the global economy
The structure of the global economy is evolving as living standards transform preferences; as society adjusts to demographic changes, such as ageing and urbanisation; and also as the nature of production evolves, rely more on digital technologies and services. The main change in the structure of the economy projected for the coming decades is an increase in the demand for services, on the part of households, governments and firms.
As income per capita increases, households spend relatively less on necessary commodities (food and agricultural products) and on manufacturing goods, and more on services, for instance recreational and leisure activities, as well as health and education. Expenditures on durable and equipment goods are also projected to change. For example, they will shift away from paper, towards more electronics and vehicles.
Similar trends in the composition of governments and investment expenditures are also projected, including increasing shares of education and R&D expenditures. Ageing also induces a shift in demand towards more services, especially health and other long-term elderly care expenditures.
The changes in the structure of the economy are also driven by changes in intermediate demand, i.e. demand for produced goods and services by firms. The main structural transformation projected is for the services sectors, and especially the business services sector, to grow faster than the rest of the economy over the period 2019-2060 (Figure 2.7). This effect, referred to as “servitisation”, is due to an intensification of services as inputs to all sectors, digitalisation, and the increase of research and development (R&D) expenses.
The structure of regional economies is also influenced by trade patterns, as supply and demand are linked via international trade. In particular, regions can specialise in the production of certain goods and services, while maintaining or expanding a broad availability of goods and services for households and governments.
As a consequence of the servitisation of the economy, the share of the plastics sector grows more slowly than the economy-wide average. However, since plastics are widely used in the economy, the demand for plastics still grows over time, responding to population and economic growth, but also to the fact that business services in particular use plastics, especially for packaging. As illustrated in Figure 2.7, plastics is a small sector of the global economy. Overall, plastics production represented 1.3% of the global economy in 2019, and is projected to slightly decline by 2060 (to 1.2%), with the global monetary value of plastics used in the economy increasing from USD 4.9 trillion in 2019 to USD 12 trillion in 2060. Box 2.4 explores the effects of the COVID‑19 pandemic on sectoral production and what it might mean for plastics.
Figure 2.7. The demand for services is projected to increase more than the economy-wide average
Note: sorted by 2019-2060 sectoral output growth in OECD countries.
Source: OECD ENV-Linkages model.
Box 2.4. How might a slow recovery from the COVID-19 pandemic affect sectoral trends, including plastics?
The COVID-19 pandemic and government response measures will affect the sectoral structure of the economy (Figure 2.8). In the Baseline scenario, in the short run (to 2025), most of the burden falls on relatively labour-intensive sectors, including accommodation and food services, transport and construction. In the longer run (to 2040), the effects of the pandemic are felt in capital-intensive sectors, as reduced investment has long-term effects on capital stock. A slower recovery would imply a slower phase-out of the shocks, affecting all sectors negatively. Consequently, although production levels would recover after 2021, they would remain below the pre-COVID Baseline projection. This also holds for chemicals and plastics production, the sectors which provide plastics in the modelling framework (see Annex A): while the Baseline scenario projects them to see a decrease in production in 2025 of 2.3% and 2.1% respectively, the Slow recovery scenario foresees much more persistent effects (although sectoral growth rates are still likely to gradually return to pre-COVID projected levels).
Figure 2.8. A slow recovery from COVID-19 is projected to dampen growth in the plastics and chemical sectors
Note: The impacts of these shocks are assessed by comparing the Baseline projection with a projection made before the pandemic in the Global Material Resources Outlook (OECD, 2019[7]).
Source: OECD ENV-Linkages mode and Dellink et al. (2021[4]), “The long-term implications of the Covid-19 pandemic and recovery measures on environmental pressures: A quantitative exploration”, https://doi.org/10.1787/123dfd4f-en.
2.1. Production processes will rely on more efficient technologies
Technical progress is a main driver of economic growth. A wide range of evolutions influence technical progress, including continued efforts to optimise production processes, new business models, and the diffusion of best available techniques. The changes in production technologies also imply changes in the input structure (e.g. substitutions of production inputs, labour or capital). Labour efficiency changes over time, driven by country-specific progress in education levels, investment in innovation, and improvement in the quality of institutions and market regulations.
The production of manufacturing goods is an interesting example of these production changes. Table 2.1 illustrates changes over time in the cost structure of aggregate manufacturing goods production for OECD and non-OECD countries. Inputs of services increase, reflecting the servitisation phenomenon described in Section 2.3, while other inputs of goods and services decrease. Thanks to improvements in the efficiency of production technologies, the inputs of plastics in the production of manufacturing goods also decline (from 3% in 2019 to 2% in 2060 on average in both OECD and non-OECD countries).
Table 2.1. The more efficient production of manufacturing goods sees plastics inputs decline
Share of components in production costs of plastics goods
Source: OECD ENV-Linkages model.
In both OECD and non-OECD countries, unit production costs are projected to decline, reflecting higher productivity resulting from technical progress. However, this effect is stronger in non-OECD countries, where a higher rate of convergence also leads to more marked changes in productivity over time. In all regions, production costs shift away from industrial inputs towards more services.
References
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[6] IMF (2020), World Economic Outlook, October 2020: A Long and Difficult Ascent, International Monetary Fund, Washington, D.C., https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020 (accessed on 22 January 2021).
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Notes
← 1. The macroeconomic projections for OECD and G20 countries match the long-term macroeconomic projections of the OECD Economics Department (Guillemette and Turner, 2018[3]). For the remaining countries, projections are provided by the OECD ENV-Growth model (Annex A).
← 2. The implications of the COVID-19 pandemic and government response measures are based on the assessment of a detailed set of shocks to employment, productivity, demand and trade (Dellink et al., 2021[4]), reflecting the macroeconomic implications of the pandemic quantified in the OECD Economic Outlook (2020[5]).