The last 10 years have been eventful ones, mostly shaped by the fallout of the global financial crisis and mixed recovery that followed. But as the global economy gets set to enter a new decade, don’t expect some sort of return to normalcy, whatever that might be. With interest rates at historic lows, a planet that is heating up, deflationary pressures everywhere, a rapidly aging population, and so on, the next 10 years will be a “peak decade” with a number of trends reaching an inflection point, according to a major recent report by Bank of America Merrill Lynch Global Research.
The bank’s global research team outlined 10 megatrends that are likely to shape the global economy over the next decade: peak globalization, recession, quantitative failure, demographics, climate change, robots and automation, splinternet, moral capitalism, smart everything, and space. An understanding of these trends and their impacts will help investors navigate through the myriad challenges and opportunities over the next 10 years. Below we look at five of them in more detail.
- Global recession will provide bigger role for fiscal policy.
- Climate change will strain the planet’s resources.
- Robots predicted to displace 50% of jobs by 2035.
- Moral capitalism will favor redistribution over inequality.
- Everything becomes smart as everything becomes connected.
What It Means for Investors
One megatrend is the likelihood of a global recession as the decade-long expansion shows signs of slowing. A record number of respondents to the bank’s Fund Manager Survey think the global economy is now in the late stages of its cycle. Meanwhile, the bond market bubble that has helped push interest rates to record lows is set to unwind. With monetary policy having reached its limits, fiscal policy will be expected to provide the bulk of stimulus, making inflation, real assets, and infrastructure the big winners over the next decade while growth, credit, and deflation will be the big losers.
A second major trend is climate change. The bank expects the world’s population to increase by close to 1 billion people by the end of the decade. The increase in population will strain the planet’s finite resource but it could also exhaust the remaining carbon budget, hastening the pace of global warming and pushing temperatures beyond a tipping point that will have devastating economic, social, and political consequences. “By 2030, climate change could push more than 100 million people in developing countries below the poverty line,” the report states.
Robots and Automation are another big trend that will have enormous impacts on global employment. Citing a World Economic Forum report from 2018, the bank claims that by 2022, just 59% of tasks across 12 different industries will still be done by humans. By 2035, that total will fall to 50% with the other half being fully automated. Artificial intelligence (AI) may even reach a level of intelligence on par with humans by 2029. The bank expects the big winners to be automation, local production, big data & AI, while the losers will be humans and global supply chains.
A fourth major trend will be the rise of moral capitalism. The primary goal of the corporation to maximize shareholder value is quickly going out of fashion. Companies will be forced to consider other stakeholders, such as employees, local communities, and the environment when making their decisions as ESG and impact investing strategies gain in popularity. ESG strategies are expected to receive about $20 trillion of assets under management over the next 20 years. Also, expect a shift from increasing inequality and fat CEO bonuses to more redistribution and universal basic income.
Smart everything is a fifth megatrend. The next decade will see another 3 billion people gain online access amid a total of 500 billion connectable devices by 2030. But in just five years time, people will be interacting with connected devices on average every 18 seconds compared to 6.5 minutes today. That means an average interaction with a connectable device 4,800 times per day. Forget about 5G mobile networks—6G may be necessary by 2029 as 5G reaches full capacity. And along with more connectivity comes more cybercrime, the costs of which are expected to reach 7% of global GDP by 2021.
The other five trends—peak globalization, quantitative failure, demographics, splinternet, and space—will have no less revolutionary consequences over the next decade. Policymakers will have there work cut out for themselves in face of innumerable challenges while entrepreneurs and investors will face many new risks as they navigate an unfamiliar world, but one with its own unique set of opportunities.