10 Global Insights into a Transforming World from 2019
Every day, global trends are reshaping society and the business landscape.
Today’s infographic from McKinsey Global Institute (MGI) presents a snapshot of 10 insights into how the world is changing, based on its research work from 2019.
How did we get here, and where are we going?
A Connected World in Flux
Globalization is making the world “shrink” every day, as humans and trade become increasingly connected. However, there are signs that point to a new phase of globalization that is leading to different outcomes than prior years.
1. Globalization in Transition
Global exports are fundamentally shifting. Although manufactured goods are traded at higher volumes, certain services have grown up to three times faster.
The compound annual growth rate (CAGR, 2007-2017) for different sectors are as follows:
|Sectors||Global CAGR (% of GDP)|
|Telecom and IT services||7.8%|
|IP charges services||5.2%|
|Financial and insurance services||3.2%|
This has a profound impact on the mix of industries and countries involved in this shift away from goods and towards services. Asia is coming of age in this phase of the global economy.
2. Asia’s Ascent
Trade with and within Asia is rising, and shows no signs of slowing down. The region’s economic might is growing rapidly, and with higher disposable incomes, consumption is growing too.
In China, there is a new dynamic at play.
3. China’s Changing Relationships
Compared to other developed nations, China’s economy is relatively closed. The country is re-balancing its focus towards domestic consumption and relying less on other countries for trade, technology, and capital.
At the same time, the rest of the world is increasingly exposed and tied to China for the same things—and such unequal engagement has a ripple effect on everything from financial markets to flows of technology and innovation.
Technology and the Future of Work
New technologies like artificial intelligence are sparking new opportunities, but they also raise questions about the future of work across geographies and gender.
4. Increasingly Digital India
As the costs of devices and data plummet, India’s digital adoption is surging—it closely competes with China for the highest digital population across everything from smartphone ownership to social media users.
As mass adoption of digital technologies continues, it is poised to add significant economic value to the Indian economy.
|Digital sector||Current economic value||Maximum potential value (2025E)|
|Core digital services|
e.g. IT business process management
|Newly digitizing sectors|
e.g. Financial services
Companies worldwide are also integrating new technologies—changing the nature of work itself.
5. New Geography of Work
By 2030, talent and investment in the U.S. will be concentrated in a few regions—with 60% of job growth coming from just 25 hubs.
These are just some examples of places which see double-digit potential net job growth by 2030. However, all regions will face unique challenges in the next decade.
6. Automation’s Effect on Gender at Work
Globally, women and men are at similar risk of losing their jobs to automation by 2030.
- Women: 107 million FTEs
Share of female employment, 2017: 20%
- Men: 163 million FTEs
Share of male employment, 2017: 21%
*FTE: full time equivalent. Based on midpoint automation scenario.
While everyone needs to adapt in the age of automation, women face more barriers. They spend up to 1.1 trillion hours on unpaid care work, nearly three times that of men (400 billion hours).
Women are also often in lower-paid roles or male-dominated professions. Additionally, many women have less access to digital technology, and limited flexibility to pursue education. These factors make it harder for women to “catch up” and bridge the gap left behind by automation.
Inequalities and Uncertainties
It’s clear that while technology generates opportunities, it also creates new social challenges. Low- and middle-income households face stagnating incomes, higher debt, and rising basic costs.
7. Declining Labor Share of Income
The U.S. labor share of income has been dropping for years—but ¾ of this decline has occurred since 2000.
According to McKinsey Global Institute, boom-bust commodity cycles and rising depreciation are the main factors behind this trend, more so than commonly-cited automation or globalization.
Stagnating incomes mean less purchasing power, while the cost of basics are sharply rising.
8. Changing Consumption Costs
The global inequality gap has narrowed, but within developed economies, it has actually increased.
Technology and globalization have made many discretionary goods cheaper. However, basic costs such as education, housing, and healthcare have ballooned compared to the rate of inflation over the past decade.
With wages stagnating, the higher costs for basics have eaten into disposable incomes in many mature economies.
A Changing Business World
Global trends drastically influence how companies compete with one another, transforming corporate dynamics worldwide.
9. Corporate Superstars
In just two decades, the distribution of economic profits has been growing increasingly wider. The top 10% of companies (>$1 billion in revenue) brings in an ever-larger share of total profits, while the losses of the bottom 10% share deepen.
- Average profit per company, 1995-1997
Top 10%: $0.85B
Bottom 10%: -$1.02B
- Average profit per company, 2014-2016
Top 10%: $1.36B
Bottom 10%: -$1.56B
*In 2016 dollars. Considers corporations with ≥$1 billion average sales (inflation-adjusted). Sample sizes: 2,450 companies (1996–1997) and 5,750 companies (2014–2016).
In essence, the bottom 10% destroy as much value as the top 10% create—and it has only intensified in 20 years.
10. Latin America’s Missing Middle
Latin America best exemplifies this corporate trend of companies “thriving” versus “surviving”.
Compared to similar economies, Latin American countries lack mid-size companies with over $50M in revenue. The Latin American average for firms per $1T GDP is 65 firms, while 100 firms is the benchmark average.
While Asia’s share of the largest firms is widely distributed across countries, Latin American enterprises are lagging behind.
What does the Future Hold?
CEOs and leaders will need to adapt to the new age of disruption—and quickly. To become a 21st century company, they must ask 10 crucial questions about how they operate in an increasingly complex world:
- What is our mission and purpose as a company?
- How far do we go beyond shareholder capitalism? How are we accountable to different stakeholders?
- Who benefits from our economic success? How?
- What is the time horizon for managing our economic success and impact?
- What is our responsibility to our workforce, especially given future-of-work implications?
- How do we leverage data and technology responsibly and ethically?
- What are our aspirations for inclusion and diversity?
- What is our responsibility for societal and sustainability issues involving our business, and beyond?
- What are our responsibilities regarding participants in our platforms, ecosystems, supply and value chains and their impact on society?
- How should we address the global and local (including national) imperatives and implications of how we compete, contribute and operate?
As the 10 insights suggest, global trends are profoundly altering the course of our future. Their impact varies greatly depending on demographics and region.
Everyone—business leaders, policy makers, and individuals worldwide—will need to adapt to the realities of a world in transformation.
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News Explainer: The Economic Crisis in Sri Lanka
Sri Lanka is currently in an economic crisis with over $50 billion in debt and consumer inflation at 39%. So how did they get here?
Explained: the Economic Crisis in Sri Lanka
Sri Lanka is currently in an economic and political crisis of mass proportions, recently culminating in a default on its debt payments. The country is also nearly at empty on their foreign currency reserves, decreasing the ability to purchase imports and driving up domestic prices for goods.
There are several reasons for this crisis and the economic turmoil has sparked mass protests and violence across the country. This visual breaks down some of the elements that led to Sri Lanka’s current situation.
A Timeline of Events
The ongoing problems in Sri Lanka have bubbled up after years of economic mismanagement. Here’s a brief timeline looking at just some of the recent factors.
In 2009, a decades-long civil war in the country ended and the government’s focus turned inward towards domestic production. However, a stress on local production and sales, instead of exports, increased the reliance on foreign goods.
Unprompted cuts were introduced on income tax in 2019, leading to significant losses in government revenue, draining an already cash-strapped country.
The COVID-19 pandemic hit the world causing border closures globally and stifling one of Sri Lanka’s most lucrative industries. Prior to the pandemic, in 2018, tourism contributed nearly 5% of the country’s GDP and generated over 388,000 jobs. In 2020, tourism’s share of GDP had dropped to 0.8%, with over 40,000 jobs lost to that point.
Recently, the Sri Lankan government introduced a ban on foreign-made chemical fertilizers. The ban was meant to counter the depletion of the country’s foreign currency reserves.
However, with only local, organic fertilizers available to farmers, a massive crop failure occurred and Sri Lankans were subsequently forced to rely even more heavily on imports, further depleting reserves.
In early April this year, massive protests calling for President Gotabaya Rajapaksa’s resignation, sparked in Sri Lanka’s capital city, Colombo.
In May, pro-government supporters brutally attacked protesters. Subsequently, Prime Minister Mahinda Rajapaksa, brother of President Rajapaksa, stepped down and was replaced with former PM, Ranil Wickremesinghe.
Recently, the government approved a four-day work week to allow citizens an extra day to grow food, as prices continue to shoot up. Food inflation increased over 57% in May.
Additionally, the increasing prices on grain caused by the war in Ukraine and rising fuel prices globally have played into an already dire situation in Sri Lanka.
The Key Information
“Our economy has completely collapsed.”
Prime minister Ranil Wickremesinghe to Parliament last week.
One of the main causes of the economic crisis in Sri Lanka is the reliance on imports and the amount spent on them. Let’s take a look at the numbers:
- 2021 total imports = $20.6 billion USD
- 2022 total imports (to March) = $5.7 billion USD
In contrast, the most recent reported foreign currency reserve levels in the country were at an abysmal $50 million, having plummeted an astounding 99%, from $7.6 billion in 2019.
Some of the top imports in 2021, according to the country’s central bank were:
- Refined petroleum = $2.8 billion
- Textiles = $3.1 billion
- Chemical products = $1.1 billion
- Food & beverage = $1.7 billion
Of course, without the cash to purchase these goods from abroad, Sri Lankans face an increasingly drastic situation.
Additionally, the debt Sri Lanka has incurred is huge, further hampering their ability to boost their reserves. Recently, they defaulted on a $78 million loan from international creditors, and in total, they’ve borrowed $50.7 billion.
The largest source of their debt is by far due to market borrowings, followed closely by loans taken from the Asian Development Bank, China, and Japan, among others.
What it Means
Sri Lanka is home to more than 22 million people who are rapidly losing the ability to purchase everyday goods. Consumer inflation reached 39% at the end of May.
Due to power outages meant to save energy and fuel, schools are currently shuttered and children have nowhere to go during the day. Protesters calling for the president’s resignation have been camped in the capital for months, facing tear gas from police and backlash from president Rajapaksa’s supporters, but many have also responded violently to pushback.
India and China have agreed to send help to the country and the the International Monetary Fund recently arrived in the country to discuss a bailout. Additionally, the government has sent ministers to Russia to discuss a deal for discounted oil imports.
A Foreshadowing for Low Income Countries
Governments need foreign currency in order to purchase goods from abroad. Without the ability to purchase or borrow foreign currency, the Sri Lankan government cannot buy desperately needed imports, including food staples and fuel, causing domestic prices to rise.
Furthermore, defaults on loan payments discourage foreign direct investment and devalue the national currency, making future borrowing more difficult.
What’s happening in Sri Lanka may be an ominous preview of what’s to come in other low and middle-income countries, as the risk of debt distress continues to rise globally.
The Debt Service Suspension Initiative (DSSI) was implemented by G20 countries, suspending nearly $13 billion in debt from the start of the pandemic until late 2021.
Some DSSI and LIC countries facing a high risk of debt distress include Zambia, Ethiopia, and Tajikistan, to name a few.
Going forward, Sri Lanka’s next steps in managing this situation will either serve as a useful example for other countries at risk or a warning worth heeding.
Note: The debt breakdown in the above visual represents total outstanding external debt owed to foreign creditors rather total debt.
Interest Rate Hikes vs. Inflation Rate, by Country
Inflation rates are reaching multi-decade highs in some countries. How aggressive have central banks been with interest rate hikes?
Interest Rate Hikes vs. Inflation Rate, by Country
Imagine today’s high inflation like a car speeding down a hill. In order to slow it down, you need to hit the brakes. In this case, the “brakes” are interest rate hikes intended to slow spending. However, some central banks are hitting the brakes faster than others.
This graphic uses data from central banks and government websites to show how policy interest rates and inflation rates have changed since the start of the year. It was inspired by a chart created by Macrobond.
How Do Interest Rate Hikes Combat Inflation?
To understand how interest rates influence inflation, we need to understand how inflation works. Inflation is the result of too much money chasing too few goods. Over the last several months, this has occurred amid a surge in demand and supply chain disruptions worsened by Russia’s invasion of Ukraine.
In an effort to combat inflation, central banks will raise their policy rate. This is the rate they charge commercial banks for loans or pay commercial banks for deposits. Commercial banks pass on a portion of these higher rates to their customers, which reduces the purchasing power of businesses and consumers. For example, it becomes more expensive to borrow money for a house or car.
Ultimately, interest rate hikes act to slow spending and encourage saving. This motivates companies to increase prices at a slower rate, or lower prices, to stimulate demand.
Rising Interest Rates and Inflation
With inflation rates hitting multi-decade highs in some countries, many central banks have announced interest rate hikes. Below, we show how the inflation rate and policy interest rate have changed for select countries and regions since January 2022. The jurisdictions are ordered from highest to lowest current inflation rate.
|Jurisdiction||Jan 2022 Inflation||May 2022 Inflation||Jan 2022 Policy Rate||Jun 2022 Policy Rate|
The Euro area has 3 policy rates; the data above represents the main refinancing operations rate. Inflation data is as of May 2022 except for New Zealand and Australia, where the latest quarterly data is as of March 2022.
The U.S. Federal Reserve has been the most aggressive with its interest rate hikes. It has raised its policy rate by 1.5% since January, with half of that increase occurring at the June 2022 meeting. Jerome Powell, the Federal Reserve chair, said the committee would like to “do a little more front-end loading” to bring policy rates to normal levels. The action comes as the U.S. faces its highest inflation rate in 40 years.
On the other hand, the European Union is experiencing inflation of 8.1% but has not yet raised its policy rate. The European Central Bank has, however, provided clear forward guidance. It intends to raise rates by 0.25% in July, by a possibly larger increment in September, and with gradual but sustained increases thereafter. Clear forward guidance is intended to help people make spending and investment decisions, and avoid surprises that could disrupt markets.
Pacing Interest Rate Hikes
Raising interest rates is a fine balancing act. If central banks raise rates too quickly, it’s like slamming the brakes on that car speeding downhill: the economy could come to a standstill. This occurred in the U.S. in the 1980’s when the Federal Reserve, led by Chair Paul Volcker, raised the policy rate to 20%. The economy went into a recession, though the aggressive monetary policy did eventually tame double digit inflation.
However, if rates are raised too slowly, inflation could gather enough momentum that it becomes difficult to stop. The longer high price increases linger, the more future inflation expectations build. This can result in people buying more in anticipation of prices rising further, perpetuating high demand.
“There’s always a risk of going too far or not going far enough, and it’s going to be a very difficult judgment to make.” — Jerome Powell, U.S. Federal Reserve Chair
It’s worth noting that while central banks can influence demand through policy rates, this is only one side of the equation. Inflation is also being caused by supply chain issues, a problem that is more or less outside of the control of central banks.
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