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Visualizing the Biggest Risks to the Global Economy in 2020

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Visualizing the Biggest Risks to the Global Economy in 2020

Top Risks in 2020: Dominated by Environmental Factors

Environmental concerns are a frequent talking point drawn upon by politicians and scientists alike, and for good reason. Irrespective of economic or social status, climate change has the potential to affect us all.

While public urgency surrounding climate action has been growing, it can be difficult to comprehend the potential extent of economic disruption that environmental risks pose.

Front and Center

Today’s chart uses data from the World Economic Forum’s annual Global Risks Report, which surveyed 800 leaders from business, government, and non-profits to showcase the most prominent economic risks the world faces.

According to the data in the report, here are the top five risks to the global economy, in terms of their likelihood and potential impact:

Top Global Risks (by "Likelihood") Top Global Risks (by "Impact")
#1Extreme weather#1Climate action failure
#2Climate action failure#2Weapons of mass destruction
#3Natural disasters#3Biodiversity loss
#4Biodiversity loss#4Extreme weather
#5Humanmade environmental disasters#5Water crises

With more emphasis being placed on environmental risks, how much do we need to worry?

According to the World Economic Forum, more than we can imagine. The report asserts that, among many other things, natural disasters are becoming more intense and more frequent.

While it can be difficult to extrapolate precisely how environmental risks could cascade into trouble for the global economy and financial system, here are some interesting examples of how they are already affecting institutional investors and the insurance industry.

The Stranded Assets Dilemma

If the world is to stick to its 2°C global warming threshold, as outlined in the Paris Agreement, a significant amount of oil, gas, and coal reserves would need to be left untouched. These assets would become “stranded”, forfeiting roughly $1-4 trillion from the world economy.

Growing awareness of this risk has led to a change in sentiment. Many institutional investors have become wary of their portfolio exposures, and in some cases, have begun divesting from the sector entirely.

The financial case for fossil fuel divestment is strong. Fossil fuel companies once led the economy and world stock markets. They now lag.

– Institute for Energy Economics and Financial Analysis

The last couple of years have been a game-changer for the industry’s future prospects. For example, 2018 was a milestone year in fossil fuel divestment:

  • Nearly 1,000 institutional investors representing $6.24 trillion in assets have pledged to divest from fossil fuels, up from just $52 billion four years ago;
  • Ireland became the first country to commit to fossil fuel divestment. At the time of announcement, its sovereign development fund had $10.4 billion in assets;
  • New York City became the largest (but not the first) city to commit to fossil fuel divestment. Its pension funds, totaling $189 billion at the time of announcement, aim to divest over a 5-year period.

A Tough Road Ahead

In a recent survey, actuaries ranked climate change as their top risk for 2019, ahead of damages from cyberattacks, financial instability, and terrorism—drawing strong parallels with the results of this year’s Global Risk Report.

These growing concerns are well-founded. 2017 was the costliest year on record for natural disasters, with $344 billion in global economic losses. This daunting figure translated to a record year for insured losses, totalling $140 billion.

Although insured losses over 2019 have fallen back in line with the average over the past 10 years, Munich RE believes that long-term environmental effects are already being felt:

  • Recent studies have shown that over the long term, the environmental conditions for bushfires in Australia have become more favorable;
  • Despite a decrease in U.S. wildfire losses compared to previous years, there is a rising long-term trend for forest area burned in the U.S.;
  • An increase in hailstorms, as a result of climate change, has been shown to contribute to growing losses across the globe.

The Ball Is In Our Court

It’s clear that the environmental issues we face are beginning to have a larger real impact. Despite growing awareness and preliminary actions such as fossil fuel divestment, the Global Risk Report stresses that there is much more work to be done to mitigate risks.

How companies and governments choose to respond over the next decade will be a focal point of many discussions to come.

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Chart of the Week

Shifting Perspectives: The Top Financial Centers in the World

Perceptions of major financial centers are being reexamined amid shifts in the geopolitical landscape, including Brexit and unrest in Hong Kong.

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world financial centers

Shifting Perspectives: The World’s Top Financial Centers

Financial centers are catalysts for global growth, with tremendous economic influence.

Historically, the rise of nations has coincided with the emergence of robust financial hubs. From London towering in the 19th century, to New York City gaining dominance in the 20th century, broader economic shifts are at play.

Today’s chart uses data from the Duff & Phelps Global Regulatory Outlook 2020, and it highlights changing perceptions on the world’s financial centers.

In total, 240 senior financial executives were surveyed—we take a look at their responses, as well as key factors that could impact perspectives across the wider financial landscape.

Financial Hubs Today

In the below graphic, you can see the percentage of respondents that voted for each city as the world’s preeminent financial center:

world financial centers today

The Status Quo

New York and London are perceived to be at the helm of the financial world today.

New York City is home to the two largest stock exchanges in the world—and altogether, U.S. stock markets account for an impressive 43% of global equities, valued at over $34 trillion. Of course, New York is also home to many of the world’s investment banks, hedge funds, private equity firms, and global credit rating agencies.

Across the pond, the London Stock Exchange has surpassed $5 trillion in market capitalization, and the city has been a global financial hub since the LSE was founded more than 200 years ago.

Together, the United States and the United Kingdom account for 40% of the world’s financial exports. But while New York City and London have a foothold on international finance, other key financial centers have also established themselves.

Rising in the East

Singapore, accounting for 2.1% of the respondents’ vote, is considered the best place to conduct business in the world.

Meanwhile, seventh-ranked Hong Kong is regarded highly for its separation of executive, judiciary, and legislative powers.

Despite ongoing protests—which have resulted in an estimated $4 billion outflow of funds to Singapore—it maintains its status as a vital financial hub globally.

Where are Financial Centers Heading?

A number of core financial hubs are anticipated to underpin the future of finance.

Although New York maintains the top spot, some executives surveyed believe that the top financial center could shift to Shanghai, Singapore, or Hong Kong.

world financial centers future

Growth in Asian Hubs

According to survey results, 8.7% of respondents said Shanghai is predicted to be the next global financial hub by 2025. Shanghai houses the largest stock exchange in China, the Shanghai Stock Exchange (SSE), and the SSE Composite tracks the performance of over 1,600 listings with $4.9 trillion in combined market capitalization.

Meanwhile, Singapore accounted for 5.4% of the respondents’ vote. Exporting $27.2 billion in financial services annually, Singapore’s economy has grown at an average clip of 7.7.% per year since the country’s independence, one of the highest growth rates in the world.

The Impending Impact of Brexit

After four tumultuous years, Britain’s departure from Europe took place on January 31, 2020.

Despite a long-awaited victory for the Conservative government, many experts are saying that economic prospects for the region look dim.

We now know that the economy will be between 2—6% smaller in 10 years than it would otherwise have been.

– Ray Burrell, Professor at Brunel University

The UK financial sector could lose over $15 billion (£12B) due to Brexit, and falling investment in the private sector may lead to wage pressure and layoffs.

On the flip side, 51% of UK businesses said that Brexit will be beneficial to business conditions.

A New Paradigm

Although the global financial sector is primarily influenced today by New York City and London, it seems that perceptions are shifting.

While both of these cities will maintain their reputations as massive financial capitals going forward, it’s also clear that hubs such as Singapore, Hong Kong, and Shanghai will be providing some stiff competition for capital.

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The Sum of Its Parts: The Smartphone Multiplier Market

Every day, 3.3 billion people rely on their smartphones to stay connected. The products and services enabling this—the smartphone multiplier market—is now worth $459 billion.

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The Sum of Its Parts: The Smartphone Multiplier Market

There’s a 60% chance you’re reading this article on a smartphone right now—a testament to how ubiquitous these devices have truly become in our lives.

We rely on smartphones every waking minute to stay connected. However, the various products and services—also known as the smartphone multiplier market—that allow us to use these devices in the first place can often be an afterthought.

Today’s chart uses data from Deloitte Insights to show just how sizable this ecosystem is becoming, and why it’s heating up as a battleground for big technology companies such as Apple, Alphabet, and Amazon.

The Smartphone Plateau

There are over 3.3 billion smartphone users in the world today.

The smartphone economy—estimated to pull in $944 billion in total revenue in 2020—is so massive that it rivals the GDP of countries like Indonesia and the Netherlands.

At the moment, the smartphones themselves contribute over half the market value. Despite the continued hype surrounding the release of new models, global unit shipments of smartphone devices appears to have reached a saturation point:

Smartphone Sales

There are two theories as to why shipments are leveling off. First, product innovation is more iterative today than in the past, which means there are fewer groundbreaking features to entice consumers into purchasing new devices. A second factor is that people are simply holding onto their devices for longer than in the past.

As device sales plateau, tech giants are diversifying efforts to find new ways to lure customers back in—and another related market is growing more lucrative as a result.

What is a “Smartphone Multiplier”?

When people think of the smartphone market, hardware likely springs to mind first, but an equally important part of the equation is the plethora of apps, services, accessories, and complementary devices that help us connect with the digital world.

The ecosystem of these products and services are known as smartphone multipliers. According to Deloitte, this ecosystem will drive $459 billion of revenues in 2020, an impressive 15% increase from the prior year.

The market can be broken down into three main categories:

CategoryMarket Value (2020e)Sub-categories
Content$312B
(68% of total)
$176B: Mobile ads
$118B: Apps
$10B: Music
$8B: Video
Hardware$111B
(24% of total)
$77B: Accessories
$25B: Wearables
$9B: Smart speakers
Services$37B
(8% of total)
$18B: Insurance
$12B: Repairs
$4B: Others
$3B: Storage

Largely driven by mobile advertising and app sales, content is by far the largest subcategory, accounting for 68% of revenues:

  • Mobile advertising surpassed TV as the largest advertising channel in 2019, partially thanks to the relentless growth of online video and social media, making ads virtually unavoidable on a smartphone.
  • Gaming apps are benefiting from the immense processing power of today’s smartphones—and will bring in over two-thirds of total app revenue in 2020. Apple’s app store brought in approximately $1.8 billion in sales between Christmas Eve and New Year’s Day alone.
    • If you’ve ever owned a pair of headphones or a powerbank, it’s easy to understand why accessories are the third-largest subcategory in the smartphone multiplier market. With more people ditching the cable for wireless headphones, this subcategory is also set to grow even more.

      The Next $1T Economy?

      In the U.S., 73% of adults go online several times a day or almost constantly, which makes it clear that they aren’t going to give up their smartphones anytime soon.

      As a result, smartphone multipliers will continue to evolve and flourish, presenting a unique opportunity for investors and businesses.

      Altogether, it’s expected that the smartphone multiplier market will grow between 5 and 10% annually through 2023, likely propelling the entire smartphone economy past the $1 trillion benchmark in the coming years.

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