The Global Economy in the Next Decade — an Uncertain Future
The 2020s will be a decade of slowing economic growth, especially in the developed world. That means the emerging economies — particularly in Asia — will continue to represent an ever-growing proportion of the global economy. But the largely unforeseeable effects of accelerating technological advances and the more predictable impacts of climate change add complexity to the already fraught business of economic prediction.
The future, of course, never really arrives. But it is getting nearer more and more quickly with each passing year. Technological change, like compound interest, builds on its own gains to amplify its own growth.
Consider: The first steam engine to generate mechanical power was patented by Thomas Newcomen in 1712. But it took nearly 70 years until James Watt perfected an engine that produced the kind of continuous, rotational motion needed to power a machine or a vehicle. And it was 1812 — a full century later — that the first commercial steam locomotive, the Salamanca, was introduced on the Middleton Railway in Leeds.
Compare that timeline with the development of mobile phone technology. First demonstrated by engineers at Motorola in 1973, mobile telephony was first commercially deployed in a public cellular network for car phones just six years later in Japan.
And in the always-on, totally interconnected world that cell phone networks helped create, six years is more than a lifetime. The first widely used web browser, the Netscape Navigator, was introduced in 1994. Microsoft launched their Internet Explorer browser the following year. By the end of the decade, Netscape effectively abandoned Navigator, opting instead to lead the development of an open source browser which eventually became Firefox.
Driven by the increasing speed of technological advance, businesses, and the economies they create are transforming at an even faster rate in the 21st century. Three of the most important companies on the planet now — Facebook, Twitter, and Amazon Web Services (AWS) — didn’t even exist in 2005, when China had only the fifth largest economy in the world, behind the United States, Japan, Germany, and the U.K. (it’s now second). Even just a decade ago, there was no Uber or Didi, no Kickstarter or GoFundMe, no Snapchat, Instagram, or WeChat.
A Billion More People
What advances will the next decade of technological development and business innovation bring? What changes will be wrought by climate change? And what will all that mean for the global economy?
The U.N. predicts there’ll be over 8.5 billion people on the planet in 2030 (a billion more than today) and that a billion of us will be older than 65. More of us will live in cities than ever before: Two-thirds, the U.N. says. And there’ll be a dozen more megacities — mostly in Asia — with a population of 10 million plus.
PwC has drawn on these U.N. numbers, historical data, and economic theory to build a complex model of how the world economy will develop in the first half of the 21st century. Their predictions about global economic trends, titled The World in 2050, includes a magisterial set of projections about the growth rates of the 32 largest economies on the planet, decade by decade. And, frankly, the news is not that good.
“Global growth rates will continue to slow” over the next decade, PwC U.K. Chief Economist John Hawksworth tells Via Satellite, in part because emerging market nations would no longer be able to take up the slack left by softening growth in the advanced economies. “You tend to grow much faster when you are catching up,” he says of the emerging economies. “Once you reach a certain level, you tend to slow down.”
But emerging nations can still continue to grow their economies faster than their populations, as long as they make sufficient investments in education and infrastructure. An educated workforce and the roads, power and broadband connectivity businesses need are essential for growth, the PwC report states.
A New World of Work
In the advanced economies, slowing growth rates won’t put a brake on the speed of technological change, and the new decade is likely to bring to the way we work, shop, and entertain ourselves, according to Accenture. The company’s Tech Vision 2019 sees big data — and the use of it to customize goods and services for increasingly demanding and fickle consumers — as being at the center of many changes to the economy coming over the next decade.
“Companies that figure out how to judiciously use data to save consumers’ time through prediction and customize their experience through personalization — without being pushy or creepy about it — will be the ones that succeed,” says Dominic Delmolino, the chief technology officer at Accenture Federal Services.
In particular, the use of Machine Learning (ML) and other types of Artificial Intelligence (AI) will be key, he says. Currently, marketing aims at groups or categories of people, “very coarse-grained groupings like double income no kids ... You’re dividing people into no more than five or six categories, and designing something aimed at one of them.”
But AI “lets me consider so many more parameters, so much more data, so that I can much more granularly focus on an individual, on defining a service for that individual,” rather than for a group or category of which he or she is a member. Consumers will be drawn to this personalization, Delmolino tells Via Satellite, “We all want to be treated as individuals.”
And these changes will transform our jobs, too, he argues, as AI will allow employers to personalize the workplace to maximize productivity. AI answers the question: “How do I customize your job to extract the most value from you as an employee?” he says. In many cases, this will mean the end of traditional jobs, as the gig economy expands to more and more sectors. “AI means I can break down work into tasks and allocate those to the individuals that are best at it,” he says.
Cyber defense was an example, he says, where a scalable temporary workforce that could be “plugged up” swiftly might be much more efficient than trying to hire a complete team of full time workers. “Can I break up a cyber defense requirement into micro-tasks that I can farm out to people through a gig style relationship?” he asks.
Asia and the Emerging Economies
The PwC model uses a measure of national income (generally referred to as Gross Domestic Product or GDP) adjusted to take account of the different purchasing power of currency in each country. Using this measure, China has already overtaken the United States as the world’s largest economy, but India is projected to remain in third place until after 2030, when half of the top ten economies — China, India, Indonesia, Brazil, and Mexico — will be emerging nations.
Other models using less conservative assumptions or different measures of GDP predict that Egypt and Turkey will join the top ten as well by 2030. By that year, both the PwC and other models show the percentage of the global economy in emerging markets overtaking the proportion in the advanced economies — and Asia matching or pulling ahead of Europe and North America.
In part, this is because those countries will have the fastest growing populations of working age. Hawksworth noted that a rising population generally added to economic growth — as long as those joining the workforce were gainfully employed.
But countries with the fastest population growth rates also have the hardest time raising their per capita GDP — which is a better measure of how well people are doing.
Nonetheless, the global growth rates PwC predict will lift hundreds of millions into the middle class over the next decade, and see discernable improvements in the lives of billions more.
But the factor with the biggest impact on economic growth in the long run, Hawksworth said, was the productivity of a nation’s workforce — how much value each employed member of the population generates each year. Unfortunately, productivity is “also the hardest [factor] to accurately predict,” he adds.
In general, he explained, productivity improvements are largely driven by “technological advances on the one hand and the diffusion of those advances around the globe through trade and investment.”
But this means friction in the globalized economic system — like a long-term trade war between the U.S. and China — might cause it to grow more slowly than predicted, he says. Barriers to trade and investment could cause technological advances to diffuse more slowly, meaning their impact would not spread so widely or so fast.
This is what economists call a downside risk: The possibility that their predictions will turn out to have been too optimistic. PwC’s modeling should hold up, Hawksworth argues, “As long as there isn’t a big long-term trend towards protectionism and countries trying to close themselves off from the global marketplace.”
Climate change was another downside risk, Hawksworth says, but he adds, “It’s quite difficult to predict how fast it will evolve and even more difficult to predict what the economic impacts will be.”
In part this is because the effects of climate change will likely be highly complex and hard to measure. Scientists agree, for example, that more volatile climatic conditions will likely lead to an increase in the number and intensity of extreme weather events — and sea-level rise will mean more flooding in coastal areas. But it’s hard to quantify how much of the cost of a bad hurricane season, or worse than usual flooding, can be chalked up to climate change as opposed to natural variation.
It might be tough to work out the exact cost, but there’s no mistaking the trendline — or its overall impact. The Red Cross estimates that by 2030, 150 million people will need humanitarian assistance as a result of climate change related disasters like floods, storms, droughts, and wildfires — compared with 108 million last year. The price tag in international aid: $20 billion in 2030, compared with $3.5 to $12 billion last year.
The Complex Effects of Climate Change
Increasing weather volatility is just one of the “impacts of climate change we are already seeing,” says Christian Man, a research fellow with the CSIS Global Food Security Project, adding to pressure on small farmers in El Salvador and many other poorer countries in Central America, the Sahel region of Africa and South East Asia.
With the global population climbing, there is a need “Not just to sustain agricultural yields, but to increase them” in order to feed a billion extra people by the end of the decade. “If your economy derives 30 percent of its value from agriculture, these kinds of changes [to the weather or sea level] aren’t just a humanitarian issue. They’re an issue for bankers, they’re an issue for anyone who depends on that economy,” Man says.
Refugees and Resource Conflict
“The number of climate refugees is increasing, and the political dynamics of that will be significant,” he says, arguing that we’ve seen a preview in the role that the issue of Central American refugee flows has played in U.S. politics — and the way migration has driven a populist right wing resurgence in European politics.
Resource conflicts were also inevitable, Man says. “It’s hard to imagine a scenario where we would not see increased conflicts over water” and other scarce natural resources. “It’s not like they’re neatly divided along national borders,” he says. As populations grow, so will competition for resources, “The scene is set for increased conflict,” he says, “It’s a huge area of concern.”
“You can get a lot of geopolitical conflicts and wars and they don’t necessarily get in the way of long-term economic growth,” added Hawksworth.
As technological advances and climate change accelerate, making it harder to peer through the fog of possible future wars, it is perhaps more and more true, as an anonymous Danish lawmaker originally observed, that “It is difficult to make predictions, especially about the future.”
Energy and Sustainability — Squaring the Circle
Of all the factors which make global economic prediction such a fraught enterprise, few are as bitterly contested, or as freighted with historical significance, as energy.
There’s a cruel paradox in predictions about energy market impacts on global economic predictions.
In order to mitigate the violent and extreme impacts of climate change predicted for the second half of the century, the Intergovernmental Panel on Climate Change says, global warming has to be limited to 1.5 degrees Celsius. And that means moving to non-carbon or zero-emission energy — transforming global energy markets completely — by the 2040s.
But the same economic growth that will lift billions of people out of poverty in the coming decade, will keep energy prices high enough that it’s profitable to keep bringing carbon-rich fossil fuels out of the ground, according to Daniel Graeber, chief editor for ClipperData, a market research firm covering the shipping and energy industries.
“There are new discoveries [of hydrocarbon fields] all the time,” he said and technological advances made it possible to exploit known reserves previously considered too deep underwater or inaccessible for some other reason — as long as it was profitable to do so.
And the higher energy prices that result from higher global growth will make more hydrocarbon sources profitable — and the Intergovernmental Panel of Climate Change’s (IPCC’s) goals harder to attain.
“All the major [oil and gas] producers have a break-even price point for a particular field,” Graeber says. “What the price [per barrel] needs to be before they can start to make the profit they need from that field,” depending on what the output will be and how much they have spent to get it out of the ground.
The International Energy Agency, an independent intergovernmental organization, reported in November that, under current conditions, it doesn’t see carbon emissions peaking until 2040. But keeping global warming under 1.5 degrees will require reaching net zero carbon emissions in the 2040s — strongly suggesting that current conditions are not sustainable. VS