CITI: These 6 Huge Trends Are Completely Reshaping The World Economy

Brain electrodes technology wiredREUTERS/Michaela RehleTest person Niklas Thiel poses with an electroencephalography (EEG) cap which measures brain activity, at the Technische Universitaet Muenchen (TUM) in Garching near Munich.

It’s no secret that the world is rapidly changing.

“Twenty years ago, there were fewer than 3 million people with Internet access; now there are nearly 2.5 billion. Mice can grow human ears. Robots make cars. Guns can be manufactured with a 3-D printer,” Citi’s Andrew Pitt writes.

For investors, it’s important to understand how all these changes are going to shake up the global order in the upcoming decades.

Pitt led a team of Citi Research analysts and Oxford University contributors teamed up to analyse the impact of six global mega-trends in a new 92-page report to clients.

“We live in a turbulent world. Knowledge will help you ride the winds and avoid the storm,” Pitt writes in the report.

We present the key points here.

Trend 1: The world is getting more integrated.

The number of democracies has increased and national borders have gotten more permeable.

Over the last 18 years, approximately 5,000 miles of land borders were opened, which has allowed 400 million citizens to live and work where they choose. Even non-democratic nations like China have increased global trade.

And of course, there's also globalized media. Over 1.1 billion people use Facebook every month and more than two-thirds of Hollywood's revenues come from international markets.

Source: Citi Research

Dropping tariff rates have led to increased integration and trade.

Average tariff rates have come down significantly since the 1980s. (Tariff rate versus year.)

Tariff rates have greatly decreased from the 1980s, which has made it easier to export and import goods and services. Take India, for example. Its peak tariffs on industrial products were over 200% in the 90s, and were less than 10% in 2009.

Reduced tariff rates have also helped domestic investments. Regional trade agreements are seeking broader goals of deeper economic and political cooperation and integration as well.

Source: Citi Research

Countries will need to address problems like soaring healthcare costs.

The ageing global population. (% of people over the age of 60 in a population)

In 1950, the global population of people aged over 60 was 200 million. By 2050, that number is expected to get to 2 billion.

The proportion of working people will decrease and the proportion of older people will increase. As a result, the question of retirement age is likely to become significant soon. For example, the life expectancy of a Greek male is 78, but pensionable age is at 57. That's 21 non-working years.

Another problem will be healthcare, especially in the US. Already the most expensive 10% of patients in Medicare accounted for 64% of total state health care costs, which is 'alarming to governments overseeing steadily ageing populations.'

Source: Citi Research

Trend 3: Next-generation technology will enter the global market place.

Mobile internet technology is the trendy topic du jour, but that technology is just an extension resulting from other inventions. In other words, it's not really a game changer.

People tend to forget that there's more to tech than smartphone apps -- and its exactly these non-mobile technology advances that are poised to shake up the world.

Nanotechnology, genetic advances, and 3-D printing are all completely new technologies that have yet to have a broad impact in society. And they could potentially revolutionise the global market place.

Source: Citi Research

3-D printing is going to revolutionise the manufacturing and medical industries.

3D Printer market growth from 2013 to 2021.

Right now the 3-D printing market is around $US2 billion, but Citi analysts believe that by 2021 this market will grow up to $US12.5 billion.

3-D printing is already used by niche speciality markets such as dental, medical, and jewelry for commercial use. The technology allows products to be easily (aka cheaply) customisable to specifications.

And on top of that, 3-D printed and customised organs are projected to be a big thing as well.

Source: Citi Research

Trend 4: Emerging economies will drive global economic growth.

By 2030, the world economy is expected to double. And by 2050, its expected to double again, according to the OECD.

This economic expansion will not be driven by population growth.

Because the world is becoming increasingly globalized, emerging market economies are seeing sustained and widespread increases in incomes and living standards. These changes will be the driving forces behind economic growth.

Source: Citi Research

China and India's middle classes will be the biggest consumers.

Emerging economies will be 'catching up' to developed ones within the next few years, which will shift the economic center of gravity eastwards. China is already huge, and India stands to be the next major economy.

India will have 25% more workers than China by 2060. Plus, India will have more middle class people (1.19 billion) versus China (1.12 billion) by 2030. But China is projected to continue having a greater GDP per capita -- $US21,000 versus $US13,000.

However, it's important to note that India's on-going political challenges could completely reverse this trend.

Source: Citi Research

Trend 5: Systemic risks are a threat to globally integrated companies.

The world's increased integration is great for economic growth and development, but it also increases systemic risks for companies.

Whether digital or physical, local, regional, or global, these disruptions can significantly affect today's international and integrated businesses.

Unfortunately, business and political leaders are completely unprepared to face these problems.

Source: Citi Research

Natural disasters have already caused major production slowdowns and financial losses.

Number of natural disasters reported versus year.

Because the world is so interconnected, companies now assemble products from parts made in various locations. Consequently, major natural disasters put supply chains at risk -- not to mention the global economy.

For example, heavy rains in 2011 forced many local factories in Thailand -- a major hub for hard disk drives -- to close down. That led worldwide production to drop by 28% and the production of notebooks, digital video recorders, and other devices was stalled. Intel's profits fell by $US1 billion in Q4 2011.

The total estimated losses attributed to the floods were $US45.7 billion. (That's approximately equal to the GDP of Kenya.)

Source: Citi Research

Trend 6: Global governance systems will fail to solve international problems.

In the global world, national governments alone can't address international risks facing the world economy. However, the current international organisations are 'poorly prepared to manage, mitigate, and govern 21st century risk,' according to Citi.

Global institutions were created during a different time, and they have not adapted to the new world order. When the UN was created in 1945, world GDP was $US7 trillion and there were 2.5 billion people alive. Today, world GDP is $US71 trillion.

'A computer cannot be fixed at a typewriter repair shop, just as 21st century problems cannot be governed by 20th century institutions,' the Citi report states.

Source: Citi Research

Climate change talks like the Rio+20 have not yet resulted in any meaningful action.

Cumulative total of anthropogenic CO2 emissions and global temperature change.

Efforts at tackling global problems such as climate change have 'largely failed.'

And one major problem is climate change. Although there has been significant agreement that climate change is a serious problem, there has been very little progress in actually doing anything about this because global governance is not organised well enough.

Global governance needs to be re-organised in order to actually tackle major problems. Discussions alone are not enough.

Source: Citi Research

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