A report on ‘Global Trends 2030′ contains a raft of forecasts that investors can put to work. Here are some key predictions — and how to use them.
What do you do with predictions? Even well-researched predictions by experienced “predictors,” like those behind the recently published “Global Trends 2030: Alternative Worlds.”
And most challenging of all, what do you do with predictions about which countries will grow most rapidly?
I think the default response — put your money into the financial markets in the fastest-growing economies — is actually wrong. Or at the least, the idea that “GDP (gross domestic product) growth equals market returns” isn’t true, and it presents a trap you want to avoid.
Some critical predictions
Let me use some of the predictions found in this recent report to explain why I believe that, and how to put such predictions to use:
By 2030, China will be the world’s leading economic power – with the U.S. second.
The world’s oil producers – especially Russia – will see their influence wane, in part because the U.S. will attain energy independence.
For the first time in history – as far as we can know – a majority of the world’s population won’t be impoverished. But half of the world’s population will live in areas with severe shortages of fresh water.
At least 15 countries will be at risk of state failure by 2030 – Pakistan, Yemen, Afghanistan and Uganda among them. Aging populations will slow growth even further in Europe, Japan, South Korea and Taiwan. China and Brazil will have stepped up to new global roles, and Colombia, Indonesia, Nigeria and Turkey will become especially important to the global economy.
Those are just four of the conclusions in the Global Trends report, a four-year effort by the U.S. National Intelligence Council.
In other areas – the risk of a computer network attack on global infrastructure that affects millions, or the possibility that a global health pandemic could reverse economic globalization – the study raised issues that I haven’t thought about at any length (except in the occasional nightmare).
But to me as an investor, the most useful function of the study is the challenge that it throws down. What, if anything, do I as an investor want to do about these predictions?
Faster growth can fool you
In some cases, I think the answer is relatively clear. For example, in the case of global water scarcity, if the study is even just mostly correct in its predictions — and I think the evidence is remarkably strong in its favor — then you want to look for shares of companies involved in moving, purifying, conserving, metering, etc. water. My most recent take on what stocks to buy on the water trend was in September (see “Water: Good as gold for investors”).
I think responses to trends in the study — such as the growth of the global middle class and the rise in consumption of food and especially protein — are also relatively straightforward. Find companies that fulfill demand created by these trends and buy their stock.
But responding to other trends is harder — and in no case is it harder than with the very large trends in GDP growth during the period. What do you, as an investor, do about faster growth in China, Brazil, Colombia, India, Indonesia, etc., and relatively slower growth in Japan, Europe and the United States? The knee-jerk response is simple: You buy the markets of the faster-growing economies. You do it because economies with faster GDP growth show higher stock-market performance.
Very simple. And, current research says, very wrong.
There doesn’t seem to be much correlation between GDP growth rates and stock market returns.
Germany outperforms China?
The best-researched example is a comparison of Germany and China from 1993 through 2011. During the period, China’s GDP grew at a real annual rate of 10.2% a year, while Germany’s real GDP growth was a piddling 1.3% a year. And yet the return produced by the MSCI China Index during the period was a cumulative loss of 44%. The return for the MSCI Germany Index was a gain of 180%.
Astonishing, no? And other academic studies of the connection between GDP growth and financial market returns come to pretty much the same conclusion: There is no simple connection between GDP growth and market returns.
There seem to be a lot of reasons for this. For example, one peculiarity of GDP is that it doesn’t distinguish between good/efficient growth and bad/inefficient growth. For example, the recovery from a storm like Sandy adds to GDP even though the storm and the recovery, when you net them out, might result in a decrease in national net worth.
Financial market returns, on the other hand, ultimately measure increases in net worth. From the point of view of a pure GDP calculation, a factory that increases production by hiring a lot of poorly trained and inefficient workers isn’t better or worse than a factory that increases production by increasing productivity through adding better machines or hiring workers with better training. In the short run (and the short run can run quite some time in a country with a large supply of surplus labor) what counts is the gross production from the factory, not the profitability of that production. In the long run, profitability raises net worth.
But one set of reasons that should be intensely interesting to investors is research showing that risk and the cost of capital are key to determining how GDP growth relates to financial-market returns. I’d summarize the research this way: If a country with a high rate of GDP growth also has a high risk premium and a high cost of capital — perhaps because of political instability or a history of inability/unwillingness to control inflation — then the financial market returns will lag the rate of GDP growth.
I don’t think this means investors should ignore differentials in GDP growth among countries. And it certainly doesn’t mean you should ignore faster growth in a China or an Indonesia when you’re building a portfolio and instead load up on low-risk but very-slow-growth Japan. (That would be a very odd view coming from someone who started a global mutual fund in 2010 in order to tap into global growth outside the U.S. economy.)
But it does mean you need to rethink the way you try to profit from higher GDP growth rates in emerging economies.
The right way to read growth. How? In two ways.
First, when thinking about investing in national economies with high relative GDP growth rates – I’d call this the ETF approach, since it involves buying Korea or China or Brazil with the purchase of an exchange-traded index fund — it requires that you think about the direction of the risk premium in that country as well as the magnitude of GDP growth.
Here’s an example to think about. The return on the iShares MSCI All Peru Capped Index ETF (EPU) over the past three years is an annualized 14.29% as of Dec. 12. The annualized return over that same three years for the MSCI China Index – which is tracked by the iShares MSCI China Index (MCHI) – is a loss of 3.36%.
This is not explicable if you look only at GDP growth rates. From 2009 to 2011, Peru averaged real GDP growth of 5.5%, according to the World Bank. China’s average annual real GDP growth rate from 2009 through 2011 was 9.6%
What happened during that period that (to me) partly explains the outperformance of Peru over China, despite the discrepancy in GDP growth rates in favor of China? I’d point to expectations. For China, growth of 9% was close to expected. For Peru, 5% was astonishing. And I’d also note the steady improvement of Peru’s credit rating, with all three major credit-rating companies raising Peru to BBB (or equivalent) ratings by August 2012. Moody’s Investors Service, in its August upgrade, cited Peru’s prudent fiscal and macroeconomic policies and the continued decline in the share of Peru’s debt denominated in foreign currencies. (Less foreign current debt means less exposure for Peru to hot money flows from overseas investors.) In contrast, worries over the health of China’s banking system and over the overextended balance sheets of heavily indebted local governments have increased during that period.
Putting it all to work
As a working hypothesis, let me suggest that if you’re trying to decide which relatively faster-growing countries in the Global Trends 2030 report to overweight in your portfolio, think about Colombia, Mexico and Turkey, where growth expectations are still relatively modest and credit quality is improving. I’d also think about putting Brazil in this group: Growth has lagged so badly recently that expectations are modest. Yet if some of President Dilma Rousseff’s structural reforms pay off, Brazil could see its traditional double-digit interest rates start to converge with those in the rest of the world.
I don’t think this hypothesis rules out investing in companies in, say, China, or other countries with fast-growing GDPs. It does, however, suggest that the “buy-the-country” ETF approach might not be the best fit.
Think of it this way: If China is going to grow GDP by 8% or 9% annually in the next few years, do you want to own China or do you want to own companies inside or outside China that will be able to tap into that growth? From this perspective, it doesn’t matter whether your China exposure is from a U.S.-based company such as Yum Brands (YUM +0.72%, news) or from a China-based company such as snack and beverage leader Want Want China (WWNTY 0.00%, news). You just want to own shares of companies with the biggest competitive edge.
So, second, when putting together a portfolio to take advantage of higher relative GDP growth in emerging economies, look for companies that are beating up on their competitors and/or who dominate their sector.
For example, in China’s retail sector, you want to own Sun Art Retail Group (6808.HK in Hong Kong) despite its odd parentage as a venture between Taiwan’s RT-Mart and France’s Groupe Auchan. In 2011, Sun Art moved to the top spot in China’s hypermarket sector with a 12.8% gain, versus 11.2% for Wal-Mart Stores (WMT) and 8.1% for Carrefour (CRRFY). Sun Art is thriving – Wall Street analysts estimate 20% growth in profits in 2013 – while competitors such as Tesco (TSCDY) are closing some stores and slowing expansion plans. The key seems to be Sun Art’s ability to run a Wal-Mart-style low-price megastore that is still attuned to Chinese tastes. For example: A Wal-Mart in Shanghai sells snacks at low prices, but its Sun Art competitor has a kitchen where customers can buy fried noodles and steamed pork buns just like they do when they shop in traditional neighborhood markets.
What other (potential) competitor-killers in fast-GDP-growth economies would I take a look at for my portfolio? How about cellphone tower operator IHS (trading as IHS.NL in Lagos, Nigeria), which has pioneered tower operation in a country with very unreliable power supplies and shaky security, but which happens to be one of the largest and fastest-growing markets for cellphones in the world? Or Megastudy (072870.KS in Seoul), the largest of Korea’s 28,000 “cram” schools? (When the Korean government recently cut back on the country’s six-day school schedule so that Korean kids would have more free time and feel less pressure, Korean parents rushed to sign up their offspring for extra tutoring.)
And don’t forget developed-market companies that have sunk deep roots in fast-GDP-growth economies. KFC parent Yum Brands is the biggest quick-service food operator in China – and has India in its sights. Johnson Controls (JCI) has become a critical supplier to any automaker assembling cars in China. (Johnson Controls is a member of my Jubak’s Picks portfolio.) Luxottica (LUX) is the largest retailer of designer sunglasses in China.
Investing in the future can be tricky, no doubt, but it is essential. After all, we’re all going to live in the future one day.
The economic crisis which began in 2007 shows little sign of ending. US debt has continued to spiral out of control, reaching $20 trillion,* and its credit rating has been further downgraded. In an unprecedented move, the dollar is now losing its status as the world’s reserve currency, with a basket of currencies in the process of replacing it. America is seemingly paralysed by political deadlock, while the cutting of its social programs is creating a dangerously polarised society.*
The contagion affecting the eurozone, originating in Greece, eventually spreads throughout most of the continent, leading to the collapse of numerous banks, corporations and financial institutions. Bailout after bailout has failed to provide an adequate long term solution.
Unemployment remains high, while poor consumer spending means governments are faced with lower tax revenues. Oil and food prices continue to rise.* Gold and silver have reached unprecedented highs.*
Meanwhile, China is facing its own problems – including the fallout of a massive real estate bubble.*
There are widespread riots and protests throughout the world during this time, volatile market conditions and frightening changes in society at large. Investor confidence is being eroded, with a growing reluctance to take risks. The world is now mired in a full-blown depression, with no sign of a light at the end of the tunnel.*
Genome sequencing continues to improve exponentially
Despite the economic crisis, a number of industries continue to show growth. One of these is genome sequencing.* After the Human Genome Project was finished in 2003, the potential for personalised medicine began to be realised. It had taken nearly 15 years and billions of dollars to identify and map all 3.3 billion base pairs in the human genome. However, the methods used to achieve this goal had begun to improve exponentially, at a rate even faster than Moore’s Law seen in computer chips.* From 2008 onwards, the cost per genome was plummeting.* By 2014, it was possible to sequence an entire human genome for less than $100.*
The second half of this decade brings even greater advances. One major trend in recent years has been the increasing portability* of machines for analysing genomes. These are now becoming so sophisticated that they can provide results in a matter of seconds, at negligible costs. Handheld genome sequencers have a wide range of practical applications. They can be used by police at crime scenes, for example, to analyse biological evidence without needing to return it to the laboratory, saving time and money. Foreign aid workers in the developing world can identify viruses and verify water quality. Food inspectors can check for harmful pathogens in restaurants. Wildlife biologists can study genes in the field.
But perhaps the most widespread use of genome sequencing is now among the general public, who can utilise it for a mere fraction of what it cost in the previous decade. Just as the Internet seemed to appear out of nowhere in the mid-1990s, personalised genomics is now exploding into the mainstream in the late 2010s. Its popularity stems from the health benefits and medical insights it offers: after the base pairs are sequenced, an individual’s genotype can be cross-referenced with a database of published literature to determine the likelihood of trait expression and disease risk later in life. This allows someone to prepare many years in advance, and to seek treatment at a much earlier stage. By the end of this decade, tens of millions of human genomes have been sequenced around the world, as a new era of personalised medicine begins to emerge. At the same time, however, concerns are raised over genetic discrimination and privacy of information.
Five-year survival rates for thyroid cancer are approaching 100%
The thyroid is one of the largest endocrine glands. Found in the neck, it controls how quickly the body uses energy, makes proteins and controls how sensitive the body is to other hormones. It does so by producing thyroid hormones which regulate metabolism and affect the growth and rate of function of many other systems in the body.
Worldwide, an estimated 213,000 people were diagnosed with thyroid cancer in 2008. More than a quarter of cases occurred in the US. However, treatments already existed that offered an excellent prognosis. In addition to surgery (which included thyroidectomy, lobectomy and tracheostomy), numerous drugs were being developed that improved the outlook for sufferers still further. In the second half of the 2010s, five-year survival rates are approaching 100% in much of the developed world.**
Virtual reality makes a comeback
The computer industry is another sector that has continued to see growth, in spite of the global economic crisis.* Exponential improvements in processing power (doubling every 18 months) are enabling the creation of highly lifelike graphics and 3D environments. At the same time, faster broadband is opening up new frontiers in cyberspace, allowing the development of Web 3.0 – the next generation of Internet. This is being combined with developments in on-person hardware, creating renewed interest in virtual reality.* Having been something of a gimmick in the 1980s, it is now becoming a serious tool for business, leisure, education and training.
Much of the content in these 3D environments is user-generated, with online communities for sharing and exchanging virtual objects, buildings, avatars, etc. For the wealthy, some of the hardware options now available include pod-like structures which are fully enclosing and respond to a variety of gesture commands.*
Tigers are going extinct
The 20th century saw tiger numbers plunge by over 95% worldwide. By the 1970s, they had disappeared from Central Asia, by the 1980s from Java and by the 1990s from South China. Three of the nine subspecies – Bali, Javan and Caspian tigers – were extinct by the 1980s.
Tiger numbers continued to decline into the 21st century. By 2010, it was estimated that India – once a stronghold for these animals – had less than 800 left in the wild, while some of the rarer subspecies had only 30 individuals. Poaching remained a serious problem, with tiger skins fetching up to $20,000 in China. Habitat loss was accelerating, with farmers encroaching into tigers’ territory and forests being cleared to make way for palm oil plantations.
Summits were held between conservation groups and the few countries where tigers remained. These proved to be ineffectual, however, and were more about politicians wanting to be seen doing something, rather than tackling the issues on the ground.
Within a few years, there were no longer any viable breeding populations of tigers, setting them on the path to irreversible decline. Once the most recognisable and popular of the world’s megafauna, this animal would soon go the way of the dodo, with only small numbers remaining in zoos and private collections.*
2015
The deadline for the Millenium Development Goals
In 2000, the largest gathering of world leaders in history took place, as the 193 UN member states met in New York to discuss the Millenium Development Goals (MDGs). These were eight international objectives with ambitious targets for developing countries, most of them to be achieved by 2015.*
• Goal 1: Eradicate extreme poverty and hunger
- By 2015, reduce by half the proportion of people living on less than $1 a day.
- By 2015, reduce by half the proportion of people who suffer from hunger.
• Goal 2: Achieve universal primary education
- By 2015, ensure a full course of primary schooling for boys and girls alike.
• Goal 3: Promote gender equality and empower women
- By 2005, eliminate gender disparity in primary and secondary education; and at all levels of education by 2015.
• Goal 4: Reduce child mortality rates
- By 2015, reduce by two-thirds the number of children dying under age five.
• Goal 5: Improve maternal health
- By 2015, reduce by three quarters the number of women dying from complications of pregnancy and childbirth.
• Goal 6: Combat HIV/AIDS, malaria, and other diseases
- By 2015, halt and begin to reverse the spread of HIV/AIDS.
- By 2015, halt and begin to reverse the incidence of malaria and other major diseases.
• Goal 7: Ensure environmental sustainability
- Reverse the loss of environmental resources.
- By 2015, halve the proportion of people lacking access to safe drinking water.
- By 2020, achieve significant improvement in the lives of at least 100 million slum dwellers.
• Goal 8: Develop a global partnership for development
- Address the special needs of the least developed countries, landlocked nations and small island developing states.
- Deal comprehensively with the debt problems of developing countries through national and international measures, in order to make debt sustainable in the long term.
- In cooperation with the private sector, make available the benefits of new technologies, especially information and communications technologies.
To accelerate progress towards the MDGs, the G-8 Finance Ministers met in London in June 2005 and reached an agreement to provide enough funds to the World Bank, the IMF and the African Development Bank to write off $55bn of debt owed by the Heavily Indebted Poor Countries (HIPC). This would allow these impoverished nations to re-channel the money saved from the cancelled debt to social programs for improving health and education and for alleviating poverty.
Achieving the MDGs would not necessarily depend on economic growth alone and expensive solutions. In the case of MDG 4, some developing countries like Bangladesh showed that it was possible to reduce child mortality with only modest growth, via inexpensive but effective interventions such as measles immunisation. A number of important and innovative new technologies were also emerging – such as the $100 laptop project,* the LifeSaver bottle* and the genetic engineering of mosquitoes.*
By 2010, some countries had achieved many goals, while others were not on track to realise any. The countries with major success stories included China (whose citizens in poverty fell from 452m to 278m), India, Brazil, Thailand, Vietnam, Cuba, Honduras, Nicaragua, Ecuador and Ethiopia.
However, some regions in Sub-Saharan Africa failed to make any significant changes in improving their quality of life. The prevalence of hunger in the Democratic Republic of Congo (DRC), for example – Africa’s 2nd largest country – more than doubled, while Zimbabwe saw a nearly 50% increase in poverty and Kenya’s child mortality rate increased from 105 to 128 per 1000.
Progress towards reaching the goals was therefore mixed. There were setbacks and disappointments. But overall, the reduction in poverty and increased access to health, education, technology and other essential services was without precedent in many countries’ histories. Of particular note was the number of deaths due to AIDS, which saw a dramatic levelling off and decline.*
By 2015, increasing global uncertainties such as the economic crisis, peak oil and climate change have led to a rethink of the MDG approach to development policy, with a new set of goals for 2030.
The world’s first fully sustainable, zero-carbon, zero-waste city
The first phase of Masdar City – a $22 billion eco-project – is completed in 2015.* This huge development is located outside of Abu Dhabi in the United Arab Emirates. Entirely pre-planned and self-contained, it is the world’s first carbon neutral, zero waste and fully sustainable city. A multitude of green technologies are utilised – including the largest solar power plant in the Middle East, rooftop photovoltaics, wind farms, geothermal sources and a hydrogen power plant. The city’s water needs are fulfilled by a solar-powered desalination plant. There are extensive recycling systems too.
Masdar City will initially be home to around 7,000 residents and 15,000 commuters. Its commercial sector is primarily concerned with the manufacture of environmentally-friendly products. Automobiles are banned from the city, residents instead using integrated forms of mass transit and personal rapid transit.* It is connected to the rest of Abu Dhabi through rail and existing roadways. It contains a university, an institute of science and technology and hosts the headquarters of the International Renewable Energy Agency (IRENA).
Masdar City will undergo major expansion. The final phase of the project will be completed by 2025, covering an area of 6 sq km (2.3 sq mi). By then, it will contain over 50,000 residents and 1,500 businesses.*
The world’s first lunar tourist
In 2001, Dennis Tito became the world’s first space tourist, spending eight days on the International Space Station and orbiting Earth a total of 128 times. Tito paid a reported $20 million for his trip, through an arrangement with space tourism company Space Adventures Ltd.
A number of startup companies sprang up in subsequent years, in the hope of creating a space tourism industry. These included Virgin Galactic, which used suborbital spacecraft designed by Scaled Composites and launched from Spaceport America. At a cost of $200,000 each, civilians could journey to a height of 110 km (68 miles), experiencing up to six minutes of zero-G whilst looking down on the Earth.
Plans for an orbital hotel were also unveiled by Russian company Energiya, in partnership with Orbital Technologies, a US hi-tech firm.
Space Adventures began to look further, however, setting its sights on an even more daring and ambitious venture. In 2015, the company offers the first lunar orbits to paying tourists. At a cost of $150 million, passengers can travel beyond Earth orbit, enjoying circumlunar trips and viewing the Moon from just 100 km (62 miles) above its surface – as well as viewing the famous Earthrise.* Only 24 people have ever experienced this. The craft is also considerably larger and more comfortable than those used during the Apollo program.*
Credit: Space Adventures
A new generation of hi-tech supercarriers
The first in a new generation of US aircraft carriers is launched this year. The Gerald R. Ford-class replaces the aging Nimitz-class which has been in service since 1975. This new class of ship includes some major improvements over previous generations. These include: increased automation, electromagnetic aircraft launch systems to replace previous steam mechanisms, increased stealth, a new type of nuclear reactor for more efficient power consumption, high tech radar and flight control, as well as the ability to carry the new F-35 Lightning II fighter jet. Ten carriers are commissioned in total, at a cost of $14bn each (including research and development). The 10th and final ship is launched by 2040.*
Credit: U.S. Navy
The United States and South Korea dissolve the Combined Forces Command
The Combined Forces Command has been in place since the end of the Korean War. It acts as a command structure for the multinational military forces supporting South Korea. For more than 50 years, military operations along the demilitarised zone between North and South Korea have been under the command of the USA. This structure is dissolved in 2015, with operations being handed over to South Korea.* From this point onwards, South Korean and American forces will operate as two separate entities during wartime. This event comes at a time of great stress between North and South Korea. North Korea has continued to conduct missile tests, to the continued disapproval of South Korea.
The first large-scale solar updraft towers are operational
The first large-scale solar updraft towers are completed in 2015.* Built by EnviroMission – a start-up company that purchased land in Arizona, USA – they stand 800 metres in height, over twice as tall as the Empire State Building. Each generates 200 megawatts of clean, renewable energy – enough to serve 150,000 homes – and equivalent to removing 220,000 polluting cars from the roads.*
The towers work by combining three old and proven technologies: the chimney effect, the greenhouse effect, and the wind turbine. Air is heated by the Sun and contained in a very large greenhouse-like structure around the base; the resulting convection causes air to rise up the chimney. This airflow then drives turbines, producing electricity.
The towers have a number of advantages:
Because they work on temperature differential, not absolute temperature, they work in any weather;
Because the heat of the day warms the ground up so much, they continue working at night;
Since large areas of hot, dry land provide the best results, they can be built on useless and uninhabited land in the middle of the desert;
They use no resources such as coal or uranium – just air and sunlight;
They emit zero pollution. The only “emission” is warm air from the top of the tower. In fact, because of the greenhouse underneath, they can also be used for growing vegetation;
They require virtually no maintenance and will last for almost a century;
They can serve as tourist attractions, with money being generated from people wishing to experience their viewing galleries at the top.
This new technology offers hope for the future, coming at a time when the world faces an impending energy crisis. Once proven to be commercially successful, it will be deployed on a wider scale in the 2020s.
Battery technology gets a boost
A new method of charging lithium-ion batteries has been perfected. This enables them to charge ten times faster and to last ten times as long. A chemical oxidation process creates miniscule holes (10 to 20 nanometres) between layers of graphene. This provides lithium ions with a “shortcut” to the anode. Energy density is increased by inserting clusters of silicon between each graphene slice, which allows more ions to gather at the electrode.*
By 2015, the process is widely used in consumer electronics. Mobile phones can now be charged from flat in under 15 minutes, with a single charge lasting up to a week. This technology also paves the way for smaller and more efficient batteries for electric cars.
3D printing is a mainstream consumer product
Until recently, this technology was extremely expensive – upwards of $15,000 per machine – and limited to use in industrial prototyping, product design, medical modeling and architectural models.* However, plummeting costs are now making it affordable to consumers.**
Rather than using ink on paper, these machines can actually “print” 3D objects. This is achieved by melting nylon powder and then shaping it based on computer instructions.
Countless different items can be produced – from jewellery and decorative giftware, to children’s toys, kitchenware, replacement plugs, hooks, pipes, fittings, flooring and other household essentials.
Users can download new items and configurations from the Web.* Artists and hobbyists can even create their own, using these printers in combination with 3D scanners and modeling software.
In addition to falling costs, another reason that home 3D printing has taken off rapidly is that there is very little manufacturing being done in America and various other countries anymore. As a result, there is little or no pressure by manufacturing special interests against it.
In the decades ahead, this technology will evolve into nanofabricators, capable of reproducing items with atomic precision within minutes. It will ultimately lead to matter replicators with near-instantaneous production of virtually any object – including foodstuffs.
OLED displays are in widespread use
Having fallen considerably in cost, organic light-emitting diodes (OLED) are appearing in a wide variety of devices. These use considerably less power than traditional LEDs and LCDs whilst allowing sharper, thinner, brighter displays. They also eliminate the need for back lights. Sunlight that would normally “wash out” a display has no effect – screens appear the same even in broad daylight, or when tilted at an angle.*
LED lamps dominate the commercial and domestic lighting markets
For many years, light-emitting diodes (LEDs) were used as indicators such as red standby dots on TVs. At first, they were available only as a red light source, and their output was too low for general illumination. As the technology developed, other colours became available and the lamps became brighter, so LEDs found other roles in a wide range of appliances and equipment.
In the early 2010s, it was found that LED technology could vastly improve the brightness, colour and distribution of lighting in social housing communal areas. Not only that, but it could deliver huge energy savings (up to 90%), and reduce long-term costs and maintenance, while making residents feel safer.
One study measured the performance of 4,250 LED light fittings, installed at 35 sites. The authors of the report calculated a saving of over 3.4 million kilowatt hours (kWh) each year when compared with the previous systems – equivalent to lighting 5,800 average homes for a year with traditional lighting. Residents commented that their buildings felt safer, more secure and more pleasant because they were better illuminated. The light was fresher, brighter and more like daylight.
With soaring energy prices, the high efficiency of LED lamps soon made them a very attractive investment. By 2015, this technology dominates both the commercial and domestic lighting markets.*
10 nanometre chips enter mass production
The next generation of microprocessor technology is released by Intel, with transistors based on a 10 nanometre manufacturing process.* Over 10 billion transistors can now be packed onto a single chip. Moore’s Law will soon be hitting a wall, as the effects of quantum tunnelling start to degrade chip performance. Traditional integrated circuits will reach their limit in the early 2020s, with a new paradigm emerging in the form of “stacked” 3D circuits made from carbon nanotubes, graphene and other new materials.
Scientists resurrect the woolly mammoth
New cloning technology has enabled the woolly mammoth – extinct for 5,000 years – to be brought back to life. Tissue samples are taken from a mammoth frozen in permafrost. The nuclei of a viable cell is then inserted into the egg cell of a female African elephant, which can act as a surrogate mother. Following a 600-day gestation period, the baby woolly mammoth is born.
Previous attempts to clone mammoths had failed, because the cell nuclei were too badly damaged by ice crystals; but new techniques have overcome this problem.*
The mammoths take around 20 years to reach adulthood. By the 2030s, they are appearing in a number of zoos and private collections. Other extinct mammals are cloned too, such as the sabre-tooth tiger and Megatherium.
LifeSaver bottles are in widespread use
Third World countries are benefitting from a revolutionary portable device. First revealed in 2007, it is now widely used by foreign aid workers and UN staff.
The “LifeSaver Bottle” filters water-borne pathogens, using holes just 15 nanometers across, to prevent even the smallest viruses (25 nanometers across) getting through, and eliminating the need for chemicals to treat the water. The Lifesaver Bottle is fitted with a 4000UF replaceable purification cartridge that removes bacteria, viruses, cysts, parasites, fungi, and all other microbiological water-borne pathogens.
It also comes with an activated carbon filter, made of a high specification activated carbon block. This reduces a broad spectrum of chemical residues including: pesticides, endocrine disrupting compounds, medical residues and heavy metals such as lead and copper. The carbon filter also eliminates bad tastes and odors from contaminates such as chlorine and sulphur. It is designed to last for approximately 250 litres.*
The Carteret Islands are abandoned
By 2015, due to rising sea levels, the inhabitants of the Carteret Islands in Papua New Guinea have been forced to abandon their homelands.* These people are among the first true climate refugees.
Crops, trees and wells have been contaminated by seawater, while most of the buildings on the islands have been destroyed. Attempts to build sea wall defences were unsuccessful – these were simply washed away.
The melting of polar ice sheets and glaciers, together with thermal expansion, could raise the level of Earth’s oceans nearly 2m by 2100 – potentially displacing hundreds of millions of people worldwide.
New Horizons arrives at Pluto
This NASA probe was launched in 2006 and has travelled more than 4 billion kilometres through space. In July 2015, it returns the first close range, high resolution pictures of the icy world – along with its five moons – before passing through the Kuiper Belt.*
Dawn arrives at Ceres
Dawn is a robotic spacecraft sent by NASA on a mission to the asteroid belt. It reaches Vesta in 2011, before rendezvousing with the dwarf planet, Ceres, in 2015.
Ceres and Vesta are the two most massive members of the asteroid belt: 950 and 530 km in diameter, respectively. Dawn is the first probe to study and photograph them at close range. Both bodies formed very early in the history of the Solar System, thereby retaining a record of events and processes from the time of the formation of the terrestrial planets.
Dawn is also innovative – it becomes the first spacecraft to enter into orbit around a celestial body, study it, then re-embark under powered flight to a second target. All previous multi-target missions (such as the Voyager program) have involved rapid planetary flybys.*
Summary:
Until at least the middle of the next decade, global growth is likely to slow to approximately 3 percent per year on average–a rate somewhat below the average of the last two decades. A recovery in advanced economies will be more than offset by a gradual slowdown in emerging ones as they mature, with the net result that global growth will slow. But the biggest risk ahead for the global economy is not this slower overall growth in output but a slowdown in average output per capita, which will determine how fast living standards can be supported and raised.
Main results:
Global growth is projected to grow at 3.5 percent in 2012, then accelerate somewhat to 3.6 percent from 2013-2016, and then show a further slowdown to 2.7 percent from 2017-2025. At 3 percent, on average, global growth will still be somewhat higher than the period 1980-1995 but between half and a full percentage point below the growth rate from 1995-2008.
Advanced economy growth is expected to slow down from an already meager 1.6 percent in 2011 to 1.3 percent in 2012. For 2013-2016, the outlook suggests some recovery in advanced economies, bringing these countries back to the pre-recession growth trend of a little more than 2 percent.
In 2012 emerging economies will slow in growth by 0.7 percentage points on average, going from 6.3 percent growth in 2011 to 5.6 percent in 2012, partly as a result of slower export growth and partly because several of them have been growing above trend. From 2017-2025 emerging and developing countries are projected to grow at 3.3 percent. Many economies will begin to show signs of maturing, at which point the rapid catch-up growth abates.
The greatest challenge for the global economy in this slow growth environment is to raise productivity without losing job opportunities for the millions who are looking for reasonably paid jobs to support their living standards. The growth rate of per capita income globally has been around 2.5 percent since the beginning of the century but sometime between 2017 and 2025, this rate will fall below 2 percent. In contrast to the past half century, that slowdown will also be accompanied by slower growth in population.
Global Outlook for Growth of Gross Domestic Product, 2012-2025 (January 2012)†
*EU-15 refers to states that joined the European Union before 2004.
**Other advanced economies include Canada, Switzerland, Norway, Israel, Iceland, Cyprus, Korea, Australia, Taiwan Province of China, Hong Kong, Singapore, New Zealand and Malta.
***CIS is Commonwealth of Independent States which includes all former republics of the Soviet Union, excluding the Baltic states.
Source: The Conference Board Global Economic Outlook, January 2012.
Global Outlook for Growth of Gross Domestic Product, 1996-2012 (January 2012)†
1996 – 2005
2006 – 2011
2011
2012
Distribution of World Output 2011
GDP Growth
Contribution to World GDP growth****
Projected GDP Growth
Contribution to World GDP growth****
Projected GDP Growth
Contribution to World GDP growth****
Projected GDP Growth
Contribution to World GDP growth****
US
18.6%
3.3
0.7
0.9
0.2
1.8
0.3
1.8
0.3
EU-15*
17.9%
2.3
0.5
0.8
0.2
1.4
0.3
0.2
0.0
Japan
5.7%
1.0
0.1
0.2
0.0
-0.5
0.0
1.5
0.1
Other advanced**
8.2%
3.8
0.3
2.9
0.2
3.2
0.3
2.8
0.2
Advanced Economies
50.4%
2.7
1.6
1.1
0.6
1.6
0.8
1.3
0.7
China
15.8%
8.1
0.6
10.9
1.3
9.2
1.4
8.0
1.2
India
5.7%
6.5
0.2
8.3
0.4
7.5
0.4
6.9
0.4
Other developing Asia
5.1%
3.9
0.2
5.1
0.2
5.1
0.3
5.0
0.3
Latin America
7.8%
2.8
0.2
3.8
0.3
4.1
0.3
3.6
0.3
Middle East
3.5%
4.5
0.1
4.8
0.2
4.8
0.2
4.0
0.1
Africa
3.3%
4.5
0.1
4.9
0.2
3.8
0.1
4.8
0.2
Central & Eastern Europe
3.9%
3.8
0.1
3.3
0.1
4.2
0.2
2.5
0.1
Russia and other CIS***
4.4%
4.0
0.2
4.0
0.2
4.4
0.2
4.2
0.2
Emerging Market and Developing Economies
49.6%
4.9
1.9
6.5
2.9
6.2
3.0
5.6
2.7
World
100.0%
3.6
3.5
3.9
3.5
*EU-15 refers to states that joined the European Union before 2004.
**Other advanced economies include Canada, Switzerland, Norway, Israel, Iceland, Cyprus, Korea, Australia, Taiwan Province of China, Hong Kong, Singapore, New Zealand and Malta.
***CIS is Commonwealth of Independent States which includes all former republics of the Soviet Union, excluding the Baltic states.
****The percentage contributions to global growth are computed as log differences and therefore do not exactly add up to the percentage growth rate for the world economy. Source: The Conference Board Global Economic Outlook, January 2012
Comparison of Base Scenario with Optimistic and Pessimistic Scenarios, 2012 – 2025 (January 2012)†
2012 – 2016
2017 – 2025
GDP Growth in Optimistic Scenario
GDP Growth in Base Scenario
GDP Growth in Pessimistic Scenario
GDP Growth in Optimistic Scenario
GDP Growth in Base Scenario
GDP Growth in Pessimistic Scenario
Distribution of World Output 2025
US
3.6
2.3
1.5
3.1
2.3
1.5
18.3%
EU-15*
2.8
1.5
0.4
2.4
1.7
1.0
16.1%
Japan
2.3
1.1
-0.1
2.0
1.5
0.9
4.9%
Other advanced**
3.0
2.6
2.3
2.0
1.7
1.4
7.8%
Advanced Economies
3.0
1.9
1.1
2.6
1.9
1.3
47.2%
China
9.6
6.9
3.9
4.9
3.5
3.1
21.8%
India
7.7
6.2
4.6
5.6
4.6
4.2
8.4%
Other developing Asia
5.5
4.6
3.9
4.5
3.8
3.1
4.3%
Latin America
4.1
3.6
3.2
3.7
3.2
2.8
7.4%
Middle East
4.8
3.9
3.0
3.9
3.2
2.5
2.7%
Africa
5.4
4.6
3.9
4.7
4.1
3.7
2.7%
Central & Eastern Europe
3.2
2.7
1.9
2.3
2.0
1.7
2.7%
Russia and other CIS***
3.6
3.4
3.2
2.2
1.1
0.0
2.9%
Emerging Market and Developing Economies
6.5
5.1
3.6
4.3
3.3
2.8
52.8%
World
4.8
3.6
2.3
3.6
2.7
2.1
100.0%
*EU-15 refers to states that joined the European Union before 2004.
**Other advanced economies include Canada, Switzerland, Norway, Israel, Iceland, Cyprus, Korea, Australia, Taiwan Province of China, Hong Kong, Singapore, New Zealand and Malta.
***CIS is Commonwealth of Independent States which includes all former republics of the Soviet Union, excluding the Baltic states.
Source: The Conference Board Global Economic Outlook, January 2012
† due to a calculation error in our November 2011 release for the estimates for some of the major emerging economy regions, the 2012 and 2013 are adjusted in January 2012
About The Conference Board Global Economic Outlook
The Conference Board Global Economic Outlook 2012 provides projections for the output growth of the world economy for 2012, 2013-2016, and 2017-2025, including 12 major regions and about 50 advanced and emerging economies. Most forecasters only focus on the next year or two, while the International Monetary Fund provides an outlook that projects six years ahead. By extending projections based on a growth accounting model, looking at the contributions of labor, capital and productivity, over more than a decade, The Conference Board outlook can identify underlying structural changes in the economy. For detailed methodology, click here.
Methodological Notes
Short-term (2012) projections are based on The Conference Board U.S. Economic Forecast, The Conference Board Leading Economic indexes (LEIs) for 11 countries/regions, and secondary sources, such as the World Economic Outlook (International Monetary Fund), the Economic Outlook (Organization for Economic Cooperation and Development), European Commission and Congressional Budget Office. Medium-term (2013-2016) and long-term (2017-2025) projections are based on a growth accounting model, looking at the contributions of labor, capital and total factor productivity to growth. Growth in labor is approximated by the growth in working age population. Capital growth is derived from growth of working age population, and the past period performance in investment over GDP ratio, total factor productivity growth, capital deepening and depreciation. Total factor productivity growth is determined by the past period performance in TFP growth and labor productivity level.
The projected GDP growth, based on the growth accounting framework, is considered relative to measured trend growth of an economy. Our optimistic and pessimistic scenarios are based on the economy’s deviation from the trend growth and the growth rate needed to close the output gap. The calculation of measures of regional and global GDP growth requires levels of GDP to weigh the growth rates of individual countries and regions by their size of GDP. The country and region GDP weights are current weights, which are the average for the beginning and the end of each period, and which are benchmarked on purchasing power parity (PPP)-adjusted GDP from Penn World Table 7.0 .
Takeaways from Brazilian investment bank Itau BBA’s economic outlook on some of the world’s biggest economies out to 2020. Itau BBA, The investment banking arm of Brazil’s biggest private bank, Itau Unibanco (ITUB), released their outlook for the next 8 years on key markets around the globe. The boom days are over. In Itau’s view, sluggish growth will persist in the U.S. and China’s economy — once it shifts to a more domestic focused economy– will finally see potential GDP average around 7% or below. In addition, older demographics means lower growth than in the last ten or twenty years. However, Itau doesn’t think that slower growth is a bad thing. A decline in fixed asset investment is potentially more dangerous, and how China manages that change will depend whether it is successful in soft landing the economy.
No. 2 China might be slowing down, but so is the No. 1. According to Itau, the U.S. economy will struggle to grow above 2% next year, and for a good three years afterwards. Whoever is elected president in November will oversee a steady, but slow, U.S. economy.
Here are some takeaways from the 25 page report by chief economist Ilan Goldfajn and his economic team at Itau in São Paulo.
U.S.A (Avg. 2014-2020 growth potential: 2.1%)
Even after an 18-month recession that saw, from peak to trough, a 5% drop in GDP, the U.S. economy has grown at an annual pace of only 2.5%, despite fiscal and monetary boosts. It is a weak recovery compared to previous recessions. The country’s potential growth is also slowing due to a slow down in labor growth (demographics), lower growth in capital stock to 2.8% from 3.7% and lower gains in total factor production to 0.6% from 0.7%.
The U.S. economy actually amassed an output gap in recent years and, theoretically, could grow beyond the 2.1% trend for a few years. However, we do not believe that demand will be strong enough to close the output gap before the end of the decade. The fiscal adjustment will likely be taking place in an unfavorable external-demand environment, particularly in Europe. Monetary policy, with interest rates already near zero, will be limited to nonconventional tools. Even if private spending improves somewhat as balance sheets gradually adjust, it should not be enough to generate substantial demand growth.”
Eurozone (Avg. 2014-2020 growth potential: 1.1%)
Goldfajn wonders if Europe can use all of its powers to stop Greek contagion throughout southern Europe. Portugal is the worst off, but still in much better shape than Greece, with more political cohesion. Greece is unsustainable. And while it will unlikely leave the eurozone this year, it’s outlook is similar to that of Argentina in the early 2000s when it defaulted on debt. The country remained and investment pariah for more than a decade and ceded its status to its northern rival Brazil. Europe’s days as a Western powerhouse are dwindling. Growth will stagnate. The eurozone must not only reestablish fiscal sustainability and competitiveness in peripheral economies –which tends to reduce investment and thus create a demand gap for a few years– but it must also face unfavorable demographic dynamics. Europe’s potential growth is hindered somewhat by a shrinking labor pool and migration. On the other hand, there is potential for increased capital stock by 1.8% and total factor productivity to rise by 0.6% thanks to higher investment.
The key European leaders are committed to the euro. There are currently no alternatives but to continue to support Greece. As we stated previously, however, this strategy does not seem sustainable in the medium term. Therefore, within that horizon, the future of the euro depends much more on the possibility of avoiding contagion than on Greece‘s actual capacity to adjust without leaving the monetary union.”
China (Avg. 2014-2020 growth potential: 7.3%)
It is unlikely that China will be able to keep flooding the country with fixed asset investment. That will be one of the main causes of a Chinese slowdown. Itau’s Goldfajn anticipates a retreat in potential growth to 6.5%-7.0% by the end of the decade. Effective growth should be below potential in 2012 and 2013 and return to potential from 2014 onwards. The three main reasons for below-average growth include a decline in fixed asset investment, an economic shift away from productive sectors of the economy in favor of service sector jobs, and an aging population.
One of the main risks for this scenario is poor capital allocation. Huge investment volumes at low interest rates and government guidance of the economy may lead to a significant buildup of badly-allocated capital, which could result in a prolonged hard landing. The other risk is the possible materialization of a severe global economic crisis. In order to offset the external shock, the government could repeat and intensify the fiscal stimuli for investment that were adopted in 2008 and 2009 as a response to the last crisis. Consequently, capital allocation could deteriorate further.”
Brazil (Avg. 2014-2020 growth potential: 4.1%)
The biggest obstacle in Brazil at the moment is a lack of workers and a low national savings rate. The labor factor will not contribute as intensely as in recent years. From 2003 to 2011, the unemployment rate fell to 6% from 13%, with skilled engineers becoming harder to find as Brazil builds out, goes more high tech, and needs to develop new technologies for its massive deep water oil discoveries. Annual population growth, at 1.5% in mid-1990, is expected to drop to 0.6% by the end of the decade, while expansion in the labor force is projected to slide to 0.9% in 2020, from 2.3%. Productivity gains should remain at current levels, given the absence of structural reforms in recent years. In other words, Brazil is not going to suddenly become a productivity powerhouse like China. The additional source of growth will have to be an increase of the capital stock. However, in order to attain it, the country must increase its savings rate.
The public sector will have three main ways to increase its savings. The first is an increase in tax revenues. Formalization among workers and companies is likely to continue for some time to come. This should help widen the tax base and keep revenues growing above GDP. Another source of higher revenue will be, in our scenario, greater taxation of the commodity sector, as is the case in other Latin American nations. Finally, the decline in neutral interest rates should continue to reduce interest payments on public debt.”
Latin America
Goldfajn’s base-case scenario for the other Latin American countries, investment rates will be sustained at high levels and productivity will advance at a pace similar to the one observed in recent years. Even with less-favorable demographic trends than in recent years, the drop in potential growth in the region should be modest. Foreign direct investment and government investment will be highest in Peru in terms of investments per GDP.
Chile and Colombia will come in a close second and third. However, in relation to the average of the last decade, Colombia will likely have the largest increase in investment rate. This is a direct result of the reduction in crime rates and of reforms adopted in recent years, especially in the energy sector.
We expect growth in the total productivity of factors to remain close to what we saw in recent years in Latin America. The exception is Argentina, where a less open, more controlled economic environment should continue to hurt productivity. We forecast that growth in total productivity throughout the decade will be higher in Peru, and that Mexico will continue to post the lowest productivity growth in the region as a consequence of low competition in many economic sectors.”
Commodities: Tamer Bulls
Commodity prices climbed 51% in real terms over the last decade, from 2000 to 2010. Significant global economic shifts occurred during that period, from fast growth in Asia to the dissemination of commodities as an asset class for investors. While the first factor contributed to a much higher need for production of those products, the latter increased liquidity and the speed of transmission of changes in demand to prices in real time. Going forward, growth in emerging nations will probably be the most important factor for commodity prices in the next years. GDP growth brings more investment and industrialization, increasing demand for fuels and metals.
Itau expects the next 10 years to see a significant hike in commodity consumption, but with higher marginal production costs than at the beginning of the last decade. “Therefore, we forecast a nominal commodity price increase of about 40% until 2020, translating into a real gain of at least 10% in the period,” the Itau report states. Within that universe of commodities, oil demand is seen rising by 10% over the next 8 years, with basic metals demand slowing to more sustainable levels of around 3% growth in the same period.
A report on ‘Global Trends 2030′ contains a raft of forecasts that investors can put to work. Here are some key predictions — and how to use them.
The mammoths take around 20 years to reach adulthood. By the 2030s, they are appearing in a number of zoos and private collections. Other extinct mammals are cloned too, such as the sabre-tooth tiger and Megatherium.
