The Reshaping of the World in Davos

As the global elite from political, business and academic arenas gathers for the World Economic Forum’s annual meeting in Davos the world faces many challenges in 2014 and beyond. The theme of this year’s meeting is “The Reshaping of the World: Consequences for Society, Politics and Business” in an effort to move away from the crisis management seen in the meetings of recent years.

So, How is the World Shaping Up?

Despite good news of a stronger economic recovery in advanced economies, the global economy remains fragile and risks are on the downside. The outlook for the medium term is weaker than we were used to pre-crisis and although the world economy appears to be normalising, this normal, as well as being fragile, is quite different to what we have been used to before the crisis.

  • Global economic growth is set to average 3.9% in the next five years, compared to 4.8% from 2003-2007;
  • Despite the current issues surrounding emerging markets, we still expect emerging and developing economies to grow at two and a half times the rate of developed economies to 2020;
  • The unemployed population topped 218 million globally in 2013, or 6.9% of the world’s labour force – 19.3 million of them were in the eurozone;
  • Per capita disposable income in the BRICs will grow by an average of 5.5% per annum in the next five years, compared to 7.1% between 2003 and 2007. In total (in 2012 prices) however this equates to an increase of US$2.1 trillion, compared to US$1.3 trillion between 2003 and 2007;
  • Average global per capita disposable income will surpass US$7,000 (in 2012 prices) for the first time in 2017. However between 2014 and 2017 income inequality will widen in 70 of the 85 countries for which we have data;
  • The average age of the world’s population will surpass 30 for the first time in 2014. By 2020, 42 countries will have an average age over 40 years.
  • The world continues to urbanise at a fast pace – offering growth potential for many consumer goods companies. Growth in urban populations is led (unsurprisingly) by Sub-Saharan Africa, whose urban population is set to increase by 25% between 2014 and 2020 – an increase of 86.4 million people.

Global Real GDP Growth: 2003-2020

WEF-Davos-Graph

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Political Tensions and Crises on the Increase

With many of the world’s major economies facing elections this year, Brazil, India, Indonesia, Turkey and South Africa amongst them, the global political landscape is set to change. Much more important than this – three years on from the Arab Spring – are the on-going developments in the Middle East. Dominating events is the continuing civil war in Syria which is having spillover effects in Jordan and Lebanon. But tensions are not limited to Syria: the Libyan government has declared a state of emergency in the south of the country; and although the yes vote for Egypt’s referendum on a new constitution received 98.1% of the vote it “ took place against a backdrop of arrests and detention of dissenting voices” according to Democracy International, a US consultancy.

It’s not just the Middle East which is experiencing unrest and instability, unrest is also engulfing Ukraine and threatens to do so in 2014 in Turkey.

Technological Change Shapes the Economy

Technology continues to shape the world. There are now more internet users in China than there are in the next 3 countries combined. As well as transforming marketing through digital advertising and social networking, technology is transforming more traditional sectors such as manufacturing and will continue to do so, with 3D printing and the ability to manufacture small amounts of products relatively cheaply huge trends to watch. In fact the power of technology to affect cost-savings for business in any sector is huge. In the future, consumers will be increasingly interacting with devices by more innovative means, especially through eye recognition, touchscreen and sensor-based technologies.

Technology has the power to drive economic growth in Sub-Saharan Africa, where 555 million now have mobile telephone subscriptions. With mobile internet access able to transform banking; as well as agriculture and education through access to information.

An Ever Shifting Business Landscape

Grappling with big data, serving (and hiring) generation y, finding growth in uncertain times, transparency and the digital revolution are just some of the trends, offering both challenges and opportunities, facing business today.

In the World Bank’s 2014 Doing Business report, Singapore topped the global rankings for the ease of doing business, followed by Hong Kong, China; New Zealand; the USA; Denmark; Malaysia; South Korea; Georgia; Norway; and the UK. Meanwhile, Ukraine, Rwanda, Russia and the Philippines were amongst the top improvers.

A report by the World Trade Organization has found that 116 new trade restrictive measures were enacted in G-20 countries in the second half of 2013. An increase in protectionism remains a key risk for business and the wider economy.

Summary

With structural reforms needed in many emerging markets, and a new vigour needed in the eurozone, the world remains in flux in 2014 with many governments searching for sustainable growth. As leaders meet in Davos to discuss these themes, strength and dynamism in global governance is sorely needed. Yet enthusiasm for global institutions is weak – as is trust in many national governments. Strong, sustainable economic growth requires stable political foundations – without them the nascent recovery is on shaky ground.

Written by Sarah Boumphrey