China will overtake the US to become the world's biggest economy in 2028, five years earlier than previously anticipated, as it recovers faster from the coronavirus pandemic, according to the Centre for Economics and Business Research.
“For some time, an overarching theme of global economics has been the economic and soft power struggle between the United States and China,” the London-based think tank CEBR said in an annual report published on Saturday. “The Covid-19 pandemic and corresponding economic fallout have certainly tipped this rivalry in China’s favour.”
China was the first country to report the coronavirus in December last year. However, strict movement restrictions introduced by Beijing helped contain the outbreak in the country and the subsequent easing of lockdown measures accelerated its economic recovery. As of Saturday, the number of infections in China reached 86,933 with 4,634 deaths, according to Worldometer. Total recoveries stand at 81,971.
“Thanks to a strict early response, China has managed to avoid re-introducing the harshest pandemic-fighting measures after the first wave and, unlike most other advanced economies, has avoided a recession in 2020,” the report said.
China is expected to grow an average of 5.7 per cent a year from 2021 to 2025 before slowing to 4.5 per cent a year from 2026 to 2030, according to the report. The International Monetary Fund sees China's economy expanding 8.2 per cent in 2021 after slowing to about 1.9 per cent this year.
The US economy will grow 1.9 per cent a year between 2022 and 2024 and then to 1.6 per cent after that, according to CEBR. It will have a strong post-pandemic rebound in 2021. The IMF forecasts the US economy will expand 3.1 per cent in 2021 following a 4.3 contraction this year.
The US has the highest number of infections globally at more than 19.2 million, while deaths total more than 338,000 and recoveries stand at 11.2 million.
Japan will remain the world’s third-largest economy throughout the 2020s, before being overtaken by India at the start of the 2030s, according to CEBR. The country’s economy will grow at 3 per cent in 2021 and 1.6 per cent in 2022. Growth is expected to settle at 0.5 per cent a year from 2025 onwards.
The UK, currently the fifth-biggest economy by the CEBR’s measure, will slip to sixth place in 2024. The country’s economy is expected to grow 4 per cent a year from 2021 to 2025 and 1.8 per cent from 2026 to 2030.
The Brexit deal between the UK and the European Union “should be not be seen as an end in itself but as a beginning of a drive to test new policies that could work to the benefit of both sides in promoting prosperity while ensuring that the gains from prosperity are fairly shared out," the CEBR said.
Growth in Germany, Europe’s largest and the world’s fourth-biggest economy, is expected to contract 6 per cent in 2020, before rising 4.2 per cent in 2021. France’s economy, the euro area's second-largest, will grow 6 per cent in 2021 and 1.7 per cent annually from 2025 onwards.
Italy’s economy is expected to contract by 10.6 per cent in 2020 with growth picking up to 5.2 per cent in 2021. Italy was the first Western country to be hit by the coronavirus outbreak in March and introduced stimulus measures worth over €100 billion ($121.6bn) to support the economy.
Spain, which has the ninth highest number of coronavirus infections is not expected to return to pre-pandemic levels of output until 2024, according to the report.
Saudi Arabia, the Arab world’s largest economy, is expected to grow at an average rate of 2.9 per cent from 2021 to 2025 and 2.3 per cent from 2026 to 2035, while the UAE’s economy will grow 2.3 per cent a year over the next 15 years.
"Over the past four years, the United Arab Emirates has become more competitive in terms of its regulatory environment", CEBR said. Over the next 15 years, CEBR forecasts the UAE will see a modest improvement in its ranking in the World Economic League Table, rising to 32nd place in 2035 from 35th place in 2020.
Egypt, the Arab world’s third-largest economy will grow 4.8 per cent a year between 2021 and 2025.
The report also said the Covid-19’s impact on the global economy was likely to show up in higher inflation, not slower growth.
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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Company Profile
Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
Funds raised: $22 million
Read more from Aya Iskandarani
Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
- Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
- Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.
