US stimulus packages and vaccines vanquishing the variants are good for global GDP prospects 2021-22. But this growth could come with collateral damage for EMs. World population growth has taken an unexpected hit from the pandemic. Growth in climate migration will increasingly test democratic policy makers. Growing rivalry between China and the West will have multifaceted fallout: economic, societal and geo-political.  Driven by AI, nowhere offices are set to ‘grow’.

  • Growth prospects for 2021 and 2022 are improving, with global GDP now projected (by the OECD) to amount to 5.6% this year – an upward revision of more than 1 percentage point compared to 3 months ago. The reasons are twofold: (1) the vaccine rollout is uneven but gaining momentum, and despite a resurgence of cases in many countries around the world, it appears that vaccines are edging ahead in the race against the variants; (2) the mammoth size of the $1.9tr US fiscal support packagethat should raise US real GDP by 6.5% this year and 4% next year, with spill-over to the rest of the world.
  • The size of the US stimulus and the possibility that another $2tr infrastructure package will be added to it are the clearest manifestation yet that the “big government is over” era is now itself over! And this in the US and in the rest of world. In all OECD countries for the post-pandemic era, expect: (1) more state intervention, (2) more welfare programmes, and (3) higher income/ wealth/corporate taxes coupled with the closing of loopholes.
  • A stronger than expected economic recovery tends to be bearish for emerging markets (EM). So far and since the pandemic started, ‘only’ 6 EMs have defaulted on their foreign debt (Argentina, Belize, Ecuador, Lebanon, Suriname and Zambia), but this should not be construed as a sign of relative EM stability. Some big nations like Brazil and South Africa have borrowed domestically at a much higher rate while shortening the average maturities – an important risk factor if the recovery takes longer or is weaker than expected. More generally, when the global economic recovery takes hold, it will lead to an increase in bond yields that will trigger capital outflows in EMs. In middle-income countries with high debt levels and large external financing needs, a financial crisis could cascade into a social (hunger, unrest) and even geopolitical (conflict) crisis.
  • The sharp global deceleration of population growth is an under-appreciated yet critical phenomenon for long-term investors and business leaders. While this is primarily driven by social choice, endocrine disruption (that has caused a 50% decline in sperm count over the past 50 years plus soaring miscarriages) is also an important contributing factor. Now COVID has added another incremental effect by causing a global baby ‘bust’ (since the pandemic started fertility rates have declined by up to 15% in most developed countries). This could bring forward the projected date of peak global population by 10 years – into the 2050s. How will this pan out? In the next 30 years, the number of people aged 65+ will double globally (reaching 1.6bn) – with the fastest ageing growth in developing countries. The population of countries like Japan, Italy, Russia and South Korea will drop precipitously (by more than half before the end of this century). Others, like China (where the number of people over 60 will reach 35% in 30 years) will become old before having had a chance to become rich.
  • The current migration crisis in the US is just the latest example of the climate risk mutating into a societal one. The interdependence between climate change, conflicts and migration is highly complex, but broadly speaking, extreme weather pushes those hardest hit (the poorest people in the poorest countries) to the rich North (the US and Europe). Already a structural phenomenon, climate migration is destined to get worse, straining politics. For democratically elected policy-makers, balancing humanitarian concerns with political and economic considerations will involve complex and difficult trade-offs.
  • Strategic competition between China and the US is escalating, with some elements reminiscent of the cold war. The rivalry takes different forms: ideological, technological (AI and 5G), military and economic (see bullet point below). A China-Russia axis versus a Western alliance is emerging with public opinions hardening on both sides. As a result, finding a balance between confrontation and collaboration is fraught with difficulties. China seems set to go on testing US resolve (as with current incursions in Taiwan’s airspace), and this can but inflate the risks.
  • Damned if you do – damned if you don’t. For months, prominent Western brands like Nike, H&M and several others have been under pressure from Western youth activists and ESG funds to take a public stance on China’s human rights. They did, and now they are being boycotted in China for airing publicly concerns about the alleged use of Uighur forced labour in cotton production. With growing rivalry between China and the West, many more Western companies will increasingly find themselves between a rock and a hard place. The broader picture is this: global companies are now responsible for the entirety of their supply chain – operationally, financially, socially and even to some extent ‘morally’.
  • The pandemic compelled many businesses to replace “just-in-time” with “just-in-case” supply chains, favouring resilience (with the price tag of more redundancy) over efficiency (at the cost of inherent fragility). This month’s Suez blockage will only accelerate this fundamental shift. The monumental traffic jam it provoked crystallises the issue of ‘overdoing it’ with gigantic vessels whose capacity has increased by 1,500% over the past 50 years. When they work just fine, huge container ships reduce the time to move goods around, expand their availability and lower their prices; but when a blockage occurs, all sorts of problems start cascading, imposing additional costs.
  • Automation and robots are very much in the news, but RPA (Robotic Process Automation) less so. Yet, RPA is about to revolutionize the office. More and more, robotic assistants and digital bots can automate repetitive tasks such as expense requests, payrolls and other payments, meeting schedules or submission of reports. As with all AI, RPA will accelerate fast and perform tasks that are both additive and substitutive, which, in turn, will give rise to what has been dubbed the “Nowhere office”. COVID has proven that nobody needs to be full-time in an office, and major changes are coming with respect to (1) the spaces we work in, (2) the way we structure our working time and (3) workplace wellness.
  • For an in-depth analysis of any of the bullet points and what they mean for you – please contact us.