Strategy matters
Our economic lead figures aren’t much different to those of previous years. Across the globe real GDP growth is expected to be in the region of 2% to 2.5% in the US, slightly lower in Europe at 1.8% to 2.3%, and 5.5% to 6% in Emerging Markets Asia (EMA). The behavior of end-consumers worldwide will drive all major components of GDP. Industrial and government spending won’t impact GDP much this time around. This is because industrial activity suffers from over capacities and government spending is still suffering from poor financial conditions. In the previous section we introduced the fact that the global economy is currently reorienting. Since 1960, the world economy has undergone just three major reorientation. Just three! So why just three and what was the cause of each transition?
Phase 1: Between 1960 to about 1988 (fall of the Berlin Wall and the end of the Communist Party in Russia), the leaders of our industries were driven by the desire to ensure each household had the basics (fridge, vacuum cleaner, toaster, radio, TV, car, etc.). One can conclude that they achieved their goal extremely well and industries boomed.
Phase 2: The period between 1990 and about 2015 was driven by delivering shareholder value. In general terms this resulted in an oversupply of goods of any type. Rising raw material costs were absorbed by higher production efficiency and/or by delocalization of factories mainly to Asia. The objective was largely achieved as stock markets have shown performances well above the historic average for many years.
Phase 3: In the most recent years, a new cycle has started called Uberisation. This term describes an economic model in which products are transformed into a service. In the same context, the term “Uberisation” also relates to Internet sharing services such as Uber and Airbnb. More importantly, most of our economic activities and processes are revisited and automated so that end-users are fully empowered. This economic concept shifts key industrial activities from manufacturing to services. At the same time, jobs will move; this new economic phenomena will create knowledge intensive jobs on the one hand and low level service jobs on the other.
Interestingly, because of these dynamics additional new jobs will be created. Together with a shrinking working-age population, the rate of unemployment in most developed markets (DM) will fall much faster than experienced in previous economic recoveries. These same reasons are likely to push unemployment rates to even lower levels, even with overall economic activity remaining sluggish, but global economic confidence improving.
Inflation
Falling energy prices have kept the rate of inflation steady; however, the benefit of lower oil prices will disappear over time. If this happens to quickly, global inflation could surge to 2.5%. Further, if geopolitical tensions were to stop oil exports from the Middle East, the global inflation rate could well exceed 3%.
See you next week for the suite!