The Group of Seven economies will be surpassed in size by the largest emerging markets in just over two decades as the financial crisis accelerates the shift of power in the global economy, PricewaterhouseCoopers LLP said.

The combined gross domestic product of the seven biggest developing economies will exceed that of the G-7, the world’s largest industrialized markets, in 2032 using projected market exchange rates, the company said in a report released in London today. China will overtake the U.S. as the world’s largest economy also in that year, it said.

Emerging markets have been leading the world out of the recession triggered by the banking crisis in developed nations, with China replacing Japan as the world’s second-largest economy last year. The report adds to forecasts saying that developing nations will propel the world economy in coming decades, driven by growth in China and India.

“This renewed dominance of China and India, with their much larger populations, is a return to the historical norm prior to the Industrial Revolution of the late 18th and 19th Centuries,” economists John Hawksworth and Anmol Tiwari said in the report. “That caused a shift in global economic power to Western Europe and the U.S. — this temporary shift in power is now going into reverse.”

Gap Narrows

In 2009, the combined GDP what PricewaterhouseCoopers calls the Emerging Seven of China, India, Brazil, Russia, Indonesia, Mexico, and Turkey was the equivalent of 35 percent of the G-7. By 2020, E-7 GDP will increase to about 70 percent of the G-7’s, and by 2050 it will be 64 percent larger, according to the report.

Also in 2032, Brazil’s economy will overtake Germany’s in size, while India will eclipse Japan in 2028, the accountancy firm said.

“Rapid growth in consumer markets in the major emerging economies associated with a fast-growing middle class will provide great new opportunities for Western companies,” Hawksworth and Tiwari said. “Without it, Western companies will increasingly be playing in the slow lane of history if they continue to focus on markets in North America and Western Europe.”

In a report last year, PricewaterhouseCoopers said the G-7 would be eclipsed in size by the “Emerging Seven” by 2020 using purchasing-power-parity-adjusted exchange rates, which take into account price differences of the same goods between countries. Today’s 2032 estimate uses projected market exchange rates, which does not correct for price differences.