Megatrend Focus: What do we expect for the future?
Monday 20 December 2021
In 2021, the world remained in the grip of the pandemic – although better management of the virus and advancing vaccination campaigns helped the global economy recover strongly. Liquidity injected by central banks and fiscal support from governments not only continued to support GDP growth this year, but also the financial markets.
Even net of inflation - and in the hope that the pandemic can finally be defeated - 2022 should be a year of growth well above pre-covid trends, especially in Europe. Anyway our strategy remains to associate the a traditional asset allocation to a 7 long-term themes approach that are becoming increasingly important for modern society and therefore for our investment strategy.
1. A new "reflation" era
After years of fiscal abstinence, developed nations have rediscovered growth-oriented fiscal policy. At the same time, major central banks are preparing to gradually scale back their pandemic-related emergency purchase programmes, although they are largely maintaining their expansionary monetary policies. We therefore believe that these developments are ushering in a new era of reflation that will lead to major and lasting changes.
2. Geopolitics: The continuing rise of Asia and Europe Integration
The second trend concerns the continuing rise of Asian countries to the top of the world league of developed economies. The first of these was Japan, with its rapid economic growth in the 1960s. In the 1980s, China followed with its reform and opening-up policy and overtook Japan in 2010 as the second largest economy, following the US in first place. We see then a further geopolitical trend in the political will to push ahead with European integration. We see a further geopolitical trend in the political will to push ahead with European integration, as it not only puts Europe on a broader growth footing, but also be-cause it makes Europe more attractive as a business location in inter-national competition with the US and Asia.
3. Technological innovation
The third trend deals with the emergence of technological innovations. These include a variety of individual aspects such as digitalisation, artificial intelligence (AI), robotics, smart cities, and blockchain. In principle, the continuous development of technologies is nothing new, but compared to the innovations of the past decades, this trend now adds a new essential element: namely that of machine intelligence, and the development that this type of intelligence is increasingly competing with human intelligence.
4. Climate Change
The next trend concerns climate change. The increase in global warming poses enormous challenges for major economies. The scientific community agrees that the 1.5°C rise in global temperature from pre-industrial levels must be limited to prevent catastrophic climate change. This means that we must reduce current annual greenhouse gas emissions of around 50 billion tonnes to zero by 2050. The good news is that we already have many different technologies to effectively reduce greenhouse gas emissions. Europe plays a key role in the implementation of global climate targets. Not only because Europe contributes significantly to global CO2 emissions, and therefore a reduction of CO2 emissions in this region is imperative but also because Europe should take a pioneering role in the production and implementation of green technologies due to its industrial competence and innovative capacity.
The general trend towards greater equality, particularly on the gender side, is to be welcomed above all because it has positive effects on growth and prosperity. According to the European Institute for Gender Equality, gender equality would create around 10.5 million additional jobs by 2050 and increase the employment rate in the EU to almost 80%. GDP per capita in Europe could increase by almost 10% by that time.
6. Healthy lifestyle
Another societal trend with huge implications is the growing awareness of healthy lifestyles. However, in addition to healthier lifestyles, increasingly better primary health care has certainly increased the average life expectancy in the OECD: in the four major Eurozone countries (Germany, France, Italy and Spain), the average life expectancy rose from around 79 years in 2000 to around 82 years in 2019. An increasingly older population in the industrialised nations, which also have healthier lifestyles, will not only relieve the burden on health policy, but will also permanently change the way older people consume and work. Sectors that specialise in this area will have higher growth potential in the long term.
7. Infrastructure 2.0
The infrastructure of an economy is an important economic driver. Investments in this infrastructure have a significant multiplier effect, which increases overall economic growth in the long term, provided that the investments are made effectively and in the right place. Infrastructure mostly comprises physical assets such as roads, electricity grids or ports. Our last trend, "Infrastructure 2.0", is the integration of smart technology into that same public infrastructure. For example, new roads and highways can be built that contain sensors, and track vehicles that are also equipped with sensors. The interaction of vehicle and road can then not only enable better traffic control, but also increase the operating efficiency of vehicles to reduce CO2 emissions. However, this requires the expansion of power and broadband networks, otherwise digital sensors will not be able to exploit their potential to measure when and where urgent needs exist.