Throughout most of the previous generations of consoles, there has been a relatively large growth in the size of the market... I believe next generation will buck this trend.

This will mainly be down to decline in the general wealth of the populations of the Western world. With rising fuel prices and inflation, the money that we have in our pockets just won't be able to buy as much. Inflation in the UK, for example, was at 4% in March compared to last year... this means that if I would now need £104 to buy what I could have bought for £100 this time last year (in fact, prices since PS3's release in the UK have increased by 14%... and that's only accounting for the reported rate, which is usually much lower than the real rate). Employment figures will also be much worse at the start of the next generation, compared to the previous.

We will also be going through much severer austerity measures throught the next 5-10 years. With spending cuts and tax increases, to boot. These are necessary, but painful and will majorly diminish the level of disposable income that the general populace have.

Unemployment in the 18-21 demographic, key for the gaming industry, is also really high (over 20% in the UK), and is notorious for being one of the slowest to come back down (employers will rather hire experienced workers over new ones).

The austerity measures, coupled with rising oil prices, will mean that a return to recession is much more likely in the future, as well.

With all this said, the gaming industry in the Western world is going to take a great hit. I personally make these predictions:

The Japanese market will be down 7-10%
The Americas market will be down 10-15%
The European market will be down 12-18%

However, if the console markets keep expanding into new territories - such as China and India, the growth from these countries mean that the overall decline in the market will be reduced. Providing that global growth keeps up, the market as a whole might only decline by about 5-8%, despite the double digit declines throughout the developed markets.

You =  crazy

well in britian if things continue they way they are that is difinate, the rest of the world we need to see if all these stimulus packages work.

You could be right. I will, however say it will grow.

The industry is aware of what you said and has learnt a whole lot from this gen that has been dogged by the recession.

Developers should learn that huge developement costs cannot be sustained. Manufacturers should learn that expensive consoles won't move well. The cost of games can be readjusted to suit the circumstances.

With the right balance the industry can actually grow in the west. In many ways there are no alternatives.

You mentioned China and India, but there are also the fast growing economies and huge populations of Russia, Turkey, Brasil etc., that I will be to be more at the forefront over the next five to ten years.

I am not in anyway rubbishing what you said, because if things do go on as now it most definitely will decline. I am just pretty sure that the industry will be restructured to cope with an uncertain future.

Ultimately time will tell.

you are wrong 

Industry is going going to get bigger as gaming becomes and more and more accepted form of entertainment globally. You wont see that big of increases in US, or Europe or Japan but instead in markets such as china, India, South east asia and the middle East. 

Bold they're not nesseccary, you should try reasurching things rather than listen to the Government as they're all in it for them selves and 99% of what the say is BS. You should try reading arcticals of this website: http://falseeconomy.org.uk/ Really good source and there's many more like that.

On topic: I personly think that next gen will grow the most as in previous gens we haven't seen nearly as many emerging economies as we are now (Brazil, China, India, Russia [less so but still], Thailand ect.) So good times for the gaming industry, bad times for VGC (more areas needed to cover with more accuracy as higher quantities being sold in harder areas)

Try researching things? What I said is pretty much 100% truthful, the cuts ARE necessary... that site is biased, it even says in the About us that it's funded by various unions and such... basically, it's just left wing propaganda. Here's a much better site: http://www.adamsmith.org (what I'm getting at is that I'm anti-union, anti-big Government, and very much right wing. The cuts are necessary. I have done much "research" than 99% of people out there).

I said in the original post that the global decline will be offset by growth in emerging markets. I don't think the emerging markets will lead to global growth next generation, though, but they will certainly be more important than the West in the generation after.

Stimulus packages just delay the inevitable... except they drag the inevitable out, and make it worse. Which will all start to come into fruition in the next generation. The UK is starting to see the effects now, because the Government are starting to cut now, meaning that we feel the pain now, rather than later... in the end, that is the best way to be.

Yes, the companies will innovate to try and cater to the lower incomes, but there's only so much they can do. The companies are having to deal with the inflationary costs, as well. Ultimately, the general business plans of the companies suggest that they are currently overly optimistic about the economic situation... look at Sony's investments into 3DTVs, for example.