Understanding an uncertain future…
Megatrends that will shape the world economy & trade over the next decades
May 3rd, 2012
Theodore Papakonstantinou
Manager
Deloitte Business Solutions S.A.
Key
Objectives

To discuss 5 megatrends + 1 key risk that are expected to shape the
future of the world economy and trade

To briefly touch upon strategic principles that can help companies
respond to the challenges that lay ahead
1. The world population is growing, ageing and moving to the cities
2. East (…and South) as the New West
3. We are running out of fuel… and water… and food… and habitat…
Agenda
4. Diffusion of technology and innovation will shape the future
5. Towards a more complex and interconnected world
6. Can you imagine the world after the Euro?
7. What next? Strategic principles for companies who want to exist (and
thrive in global markets) in 2030
1
2
3
As of March 2012, the world population is estimated to have
exceeded 7 billion. Growth will most likely continue, at a lower pace,
driven mainly by Asia and Africa.
By 2030…
 The world population is expected
to substantially exceed 8 billion
 The population of developing
countries will grow from around
5.6 billion to more than 7.0 billion
 The population of developed
countries will modestly grow from
1.2 billion to approx. 1.3 billion
 Negative population growth
already experienced in some
countries (especially in CEE) is
quite soon expected also for
Japan and certain countries in
Western Europe.
Source: United Nations Department of Economic and Social Affairs
4
The world population is ageing fast due to a declining birth rate
and longer life expectancy.
Global fertility rate (children / women)
5.0
Global demographic development
4.9
16%
Global population > 65 years
Global population < 5 years
4.5
14%
4.0
12%
3.5
10%
3.0
8%
2.6
Projection
2.5
2.0
2.0
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040
6%
4%
1980 1990 2000 2010 2020 2030 2040 2050
Projection
Source: United Nations World Population Projections
5
Ageing has dramatic dimensions and it affects industrialized
nations and many emerging economies alike.
The old-age dependency ratio of Greece was around 30 in 2010 and is
expected to exceed 50 in 2040.
Source: United Nations World Population Prospects 2010, Eurostat
6
On the other hand, Africa and Middle East are currently
experiencing a prominent youth bulge which means that they are in
good position to harness this human capital and achieve economic
growth in decades to come.
Males
Females
millions
Source: United Nations Department of Economic and Social Affairs
7
Urbanization will keep rising at a faster rate (8.5%), compared to the
last 20 years (7.8%). By 2030, 60% (~4.8 billion) and by 2050, 70% of
the world's population will be urban, up from around 50% today.
Percentage of urban population and agglomerations by size class (1960 – 2025)
1980
2011
2025
1960
Source: United Nations Department of Economic and Social Affairs
8
Changing demographics have various economic implications worth
taking into consideration by global companies.
Implications for developed countries…
 Pressure on government budgets & debt due
to pension and health care costs
 Pressure on GDP growth due to less
employees
Population
Growth
Population
Ageing
Population
Urbanization
 New attractive markets (e.g. countries with
growing population and growing income per
capita such as India, China, Nigeria,
Indonesia, Brazil, Philippines, Turkey, Egypt
and Mexico)
 New attractive market segments (e.g. “silver”
segment)
 New sources of cheap labour (e.g. Africa)
 Changing demand patterns due to
urbanization (e.g. more convenience, greater
choices, faster and greener solutions, more
services, smart products using limited space)
9
10
Globalization is likely to continue as exports and FDI will continue to
grow faster than GDP.
 After twenty years, exports will account for
33% of GDP, compared to 26% today and
17% in 1990.
 Real exports of developing countries will
rise nearly twice as fast as those of
developed countries
 The integration of developing countries’
national economies into the international
economy will accelerate
 Developing countries will claim a rising
share of received FDI inflow
Source: WTO, IMF; Goldman Sachs; Standard Chartered Bank; EIU; World Bank; Roland Berger
11
A shift from West to East in global trade is evident…
World merchandise export shares by selected economy (1963 - 1993 - 2010)
1963
25,5%
USA
14,9%
Germany
France
Italy
UK
3,5%
1,3%
5,7%
2,5%
China
Japan
Africa
6,4%
Six Asian Traders*
South & Central America
*Six East Asian Traders: Hong Kong; Malaysia; South Korea; Singapore; Taiwan and Thailand.
Source: WTO
12
A shift from West to East in global trade is evident…
World merchandise export shares by selected economy (1963 - 1993 - 2010)
1993
25,8%
USA
Germany
France
Italy
UK
11,2%
1,2%
4,5%
5,8%
8,0%
China
Japan
Africa
4,4%
Six Asian Traders*
South & Central America
*Six East Asian Traders: Hong Kong; Malaysia; South Korea; Singapore; Taiwan and Thailand.
Source: WTO
13
A shift from West to East in global trade is evident…
World merchandise export shares by selected economy (1963 - 1993 - 2010)
2010
17,7%
USA
Germany
France
Italy
UK
8,6%
10,6%
3,4%
5,2%
China
Japan
10,1%
Africa
3,9%
Six Asian Traders*
South & Central America
*Six East Asian Traders: Hong Kong; Malaysia; South Korea; Singapore; Taiwan and Thailand.
Source: WTO
14
The global economic imbalance grew substantially during the first
decade of the millennium. Nevertheless, after the global economic
crisis of 2008-09, there are signs of a global rebalancing.
15
BRIC countries are expected to assume leading role in the world
economy and Next 11 to become the most rapidly developing
countries with the greatest economic potential.
Russia
Turkey
India
Mexico
Brazil
Vietnam
Philippines
Pakistan
Nigeria
South Korea
China
Iran
Bangladesh
Egypt
Indonesia
BRIC
Next 11
16
BRIC and Next 11 countries are expected to account for nearly 50%
of global GDP and 35% of global exports by 2030, shifting the world
economy’s centre of gravity more to the East and South.
BRIC
 36% of global GDP in 2030, compared to
18% today
 23% of global exports in 2030 (same as
Europe), compared to 14% today
 China to overtake USA as the world's
largest economy as early as 2016 and
probably no later than 2026
 Dominant global suppliers…
o China & India: manufactured goods
and services
o Brazil & Russia: raw materials
 Middle class will grow 150%, from 0.8
billion today to 2.0 billion in 2030
 200 million more people with annual
income over USD 15,000 into the world's
economy by 2025
 All of them could already be members of
G8 (only Russia is)
Source: Goldman Sachs; IMF; EIU; World Bank; Roland Berger
Next 11
 Large and growing populations,
combined with significant industrial
capacity or potential
 11% of global GDP in 2030 with average
annual growth rate of 6%
 12% of global exports in 2030, compared
to 9% today
 Mexico, South Korea, Indonesia and
Turkey larger economies and exporters
 Middle class will grow 120%, to around
720 million in 2030
 Next 11 countries can be categorized as:
o Developing: Bangladesh, Iran,
Nigeria, Pakistan and Vietnam
o Newly Industrialized: Egypt,
Indonesia, Mexico, the Philippines,
and Turkey
o Developed: South Korea
17
While the BRIC and Next 11 countries have significant growth
potential, certain factors could hinder them from following their
forecasted growth path and could alter the envisaged global
landscape.
Political events may restrict growth
prospects whereas unforeseen events, such
as natural disasters, can result in severe
supply chain disruptions that adversely
affect the growth prospects of a country.
The factors and advantages
that propel high growth in
developing countries - low-cost
labor and easy technology
adoption - disappear when they
reach middle- and uppermiddle-income levels.
The USA and other debtor countries
like the United Kingdom must save
more, import less and export more.
On the other hand, China will have
to stimulate consumer spending.
Commodity price volatility and
sharply rising transportation
costs together with currency,
political, and weather related
risks may force firms to move
from a hub-and-spoke model to a
more localized production model.
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19
Within a few decades, energy, water, food and other commodities
such as some metals and minerals will become scarce. Moreover,
more stress will be put on the ecosystem and its biodiversity.
 Water consumption will
rise, mainly in agriculture
and industry
Estimated time since
depletion of energy sources:
 Oil: <50 years
 Natural Gas: <70 years
 Coal: <120 years
 Water scarcity will lead to
higher prices and need for
efficiencies
Energy
 Very high demand for
raw materials by
developing countries
 Prices will skyrocket,
especially in rare
metals and minerals
(e.g. indium)
Other
Commodities
 Global temperature to rise
0.5 – 1.5 oC in 20 years
 Rising sea levels,
desertification and more
extreme weather are to be
expected
Global
Warming
Water
Food
 Food prices will rise
as demand will grow
faster than production
(which is threatened
to even decrease)
Ecosystem
Stress
 Conversion and
destruction of land and
loss of biodiversity will
continue due to agriculture,
infrastructure, climate
change and forestry
20
21
Technology diffusion, faster technology adoption and innovations
with shorter cycles are expected to change our lives in the decades
to come.
Faster Technology Adoption
& Shorter Innovation Cycles
Technology
Diffusion
Major Innovation Areas

ICT & the Postdigital Enterprise

Robotics

Life sciences (pharmaceuticals ,
medical devices & biotechnology)

Nanotechnology

Energy & environment
22
23
The changing global economic order, greater global complexity,
technological advancement, risk of political and environmental
crises and shifting social phenomena shape a more complex and
interconnected world.
Global &
Enterprise
Knowledge
& Social
Networks
Global
Accountability,
Cooperation &
Coordination
War for
Talent
Multipolar
Global
Governance
Issue
Focused
Global
Networks &
NGOs
Narrower
Gender Gap
Regulation
24
25
The risk of a Eurozone break-up is one of the greatest concerns for
business people worldwide…
Source: Deloitte CFO Survey 2012
26
…whereas public opinion in many European countries is neither
very supportive nor confident about the future of the Euro.

Grey bars represent respondents who answered “Yes” to the question, “Do you think the euro will remain
your nation’s currency in 10 years?”

Red bars represent respondents who answered “Yes” to the question, “Do you prefer the euro to your past
national currency?”
Source: Nomura FX Strategists, Wall Street Journal
27
Different scenarios have been considered by the markets but the
outcome remains unknown.
The Future of the Euro?
Fiscal compact agreed and targets met
ECB & EFSF/ESM
provide required
financing
Sovereign debt
restructured in
weaker countries
Euro strengthens
on positive market
reaction
Euro survives but
economies still in
recession
Stronger countries
move to fiscal
compact and one
or more weaker
countries leave the
Euro
Euro rises as
Eurozone consists
of stronger
economies
Euro survives but possibly with fewer countries
Stronger countries abandon Euro and form
new currencies which appreciate strongly
Other countries
continue to use the
Euro
All other countries
revert to domestic
currencies which
depreciate
Euro falls sharply
as Eurozone
consists of weaker
economies
Eurozone
collapses and Euro
ceases to exist
Euro disappears or weakens significantly
28
A break-up of Eurozone is expected to cause value erosion to
almost all national currencies.
1.6
1,3%
1.4
-6,7%
-6,8%
1.2
1,34
-7,1%
-9,4%
-23,9%
-28,6% -27,3%
1.0
-35,5%
0.8
0.6
-47,2%
-57,6%
1.25
1.25
1.36
1.25
1.21
1.02
0.96
0.97
0.4
0.86
0.71
0.57
0.2
0.0
Greece
Austria
Belgium
Finland
France
Germany
Ireland
Italy
Netherlands Portugal
Spain
The chart above shows the fair value estimate for new national currencies of the 11 original Eurozone members
if the Eurozone was to break-up. They represent an initial benchmark for where currencies may trade in a “new
equilibrium” following a potentially lengthy and extremely volatile transition period, and thus they have been
calculated based on a 5 year horizon following a potential Eurozone breakup.
The percentages included in the chart represent the degree of appreciation or depreciation from the EUR/USD value, which stood at
roughly 1.34. as of early December 2011.
Source: Nomura FX Strategists
29
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Certain strategic principles can assist companies position
themselves in the future global markets.
Scenario &
Contingency Planning
Rethink your business
model and global footprint
Strive for efficiencies
and reduce
dependencies
Focus on innovation and
adapt to the postdigital era
Strategic
principles
for the
decades to
come
Focus on growth
regions / markets and
segments (e.g. middle
income, silver segment)
Establish cooperative
partnerships and
networking
Place talent management
high on your agenda
Focus on sustainability and CSR
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