Globalisation
Overview
One Minute Read
Global megatrends are prompting structural shifts in many industries and changing the drivers of corporate earnings. The world is getting hotter; impacting climate, weather, sea levels, resources and human health. Serious action needs to be taken before 2030 and the sustainable transformation will profoundly impact societies, governments, industries and businesses.
Global Growth
Economic downturn
World trade values today have ballooned by almost 347 times from 1950 levels. As of 2021, world trade volume and value have expanded 4% and 6% respectively on average since 1995, when the WTO was first established [1].
Globalisation is set to continue, with worldwide exports growing faster than the worldwide gross domestic product (GDP). By 2030, global exports will have more than doubled; exports from developing economies are projected to grow almost fourfold [2].
Shocks do have an impact, the COVID-19 pandemic caused world trade volumes to fall 17% [3], However, trade in goods made a strong recovery in 2021, exceeding pre-pandemic levels [4].
With further shocks in 2022, the World GDP will only increase by 2.8% in 2022 and by 2.3% in 2023 (revised down from 3.2%). Trade and output will be weighed down by several related shocks, including the war in Ukraine, high energy prices, inflation, and monetary tightening [5].
The UK was the fastest growing G7 economy in 2021, and is forecast to be the second fastest in 2022. However, next year, the UK is expected to have the slowest growth in the G7 and across Europe's main economies, at just 1.2%, a near halving from the 2.3% expected previously [6].
Most impacted industries: Retail & Consumer Goods, Transportation, Energy & Resources and Financial Services.
Shift to East & South
Asian century
Economic power has shifted towards Asia and Africa.
Emerging economies led by China and India have accounted for almost two-thirds of global GDP growth and more than half of new consumption in the past 15 years. For the first time in history, emerging economies are counterparts on more than half of global trade flows [1]. Asia is set to become the backbone of the global economy, as a result of a growing population and rising incomes, with the Asian Century trend set to dominate markets in the coming years.
By 2017, China accounted for 15% of world GDP. It overtook the United States to become the world’s largest economy in purchasing power parity terms in 2014, according to International Monetary Fund data—for the first time since 1870 [2].
Most impacted industries: Financial Services, Retail & Consumer Goods, Energy & Resources and Transportation.
Geopolitical Tensions
Deglobalisation?
Geopolitical and geo-economic tensions are rising among the world’s major powers. These tensions represent the most urgent global risks at present.
A decade ago, protectionism was still a dirty word in US politics. But the Trump administration started a trade war with China and the Biden administration has kept the tariffs in place. A bipartisan consensus in the US is now pushing for policies to reduce economic dependence on China and to repatriate key industries, in particular semiconductors. India has followed the decoupling trend, banning Chinese tech companies, such as TikTok, as a response to rising tensions with Beijing. The Chinese themselves are active participants in this process of decoupling. Arguably, they made the first significant move, with a drive to promote domestic production of key technologies. Beijing’s “Made in China 2025” policy was announced in 2015, before Donald Trump’s election [1].
The invasion of Ukraine has made it seem imprudent not to rely on political rivals for key economic inputs. The political and strategic arguments for cutting trade ties are increasingly supplemented by arguments about the environment and social resilience. This is pushing the global into an increasingly multipolar world with competing poltical/economic systems and challenging the multilateral trade environment underpinned by the World Trade Organization (WTO).
Other geopolitical issues such as Russia, Iran, North Korea, Syria, Taiwan, Palestine, East Africa etc. will continue to represent risks.
Most impacted industries: Technology, Retail & Consumer Goods, Energy & Resources and Aerospace & Defence. There will also be an impact in Governmental spending in Defence & Security.
Resources
Haves and have nots
Global demand for materials has increased tenfold since 1900 and is projected to double again by 2030 [1].
For the past century the world has been dependent on Oil & Gas resources. However the dependency on digital technology and electrification to fuel the post-carbon world is making global industry dependent on the supply on certain raw materials.
However, the supply of many critical raw materials is highly concentrated. The 2020 EU list contains 30 materials as compared to 14 materials in 2011. For example, China provides 98 % of the supply of rare earth elements (REE), Turkey provides 98% of the supply of borate, and South Africa provides 71% of needs for platinum and an even higher share of the platinum group metals iridium, rhodium, and ruthenium [2]. Reliable and unhindered access to certain raw materials is a growing concern across the globe.
The risks associated with the concentration of production are in many cases compounded by low substitution and low recycling rates.
Increased urbanisation and changing consumption patterns are also having a significant impact on the quantity and quality of water resources. Demand is likely to increase by 55% by 2050 [3] and combined with climate change stress this can lead to local geo-political tensions.
Most impacted industries: Transportation, Technology, Media & Telecommunications, Construction and Energy & Resources.
Global Risks
A more dangerous world
Over the past two years, the pandemic and the Ukraine war have demonstrated how vulnerable global trade is to unexpected shocks. Covid-19 shut down global travel and disrupted supply chains. The war in Ukraine led to a rupture in the west’s economic ties with Russia. And the combined political and social forces that are now pushing against globalisation make it likely that there will be further shocks to come.
The World Economic Forum's (WEF) Global Risks Report warned of potential knock-on economic risks that are now clear and present dangers. Supply chain disruptions, inflation, debt, labour market gaps, protectionism and
educational disparities are moving the world economy into choppy waters that both rapidly and slowly recovering countries alike will need to navigate to restore social cohesion, boost employment and thrive. These difficulties are impeding the visibility of emerging challenges, which include climate transition disorder,
increased cyber vulnerabilities, greater barriers to international mobility, and crowding and competition in space. Added to this is the risk of infectious diseases [1].
Most impacted industries: Technology, Media & Telecommunications, Financial Services, Healthcare, Energy & Resources and Construction. Societal, Environmental, Econonic and Geopolitical risks also impact Governments.