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* Patrick Dixon advises many of the world's largest corporations on global trends, including banks, insurers and governments. 

What factors will shape longer term economic growth globally?  What about life beyond COVID?  What will be the impact of the combined economic stimulus of Central Banks?

There have been two major economic crises in the last 12 years: the banking crisis and now the pandemic crisis.

Major economic factors that will shape the next decade and beyond

Here are the major factors likely to shape the global economy over the next decade and beyond: (Article posted in April 2021 - judge for yourself how right it was.)

1. Global economy survived the first and second crises better than many thought would be the case.

Thanks to emerging markets, the global economy grew in every year of the banking crisis except 2009. Growth in China slowed but never below 5-7% a year.  

And a year after COVID lockdowns first began, US stock markets had largely recovered, while many global companies had excellent cash reserves, ready for investing in growth.

Of course, part of that was because of levels of Central Bank and government support that one would normally only see in wartime.  For example, a year after Lockdown began, the UK government was still paying the salaries of around 25% of all privately employed workers.

2. Publicly listed corporations around the world are sitting on over $12 trillion cash reserves (excluding financial companies)

That’s more than the entire foreign exchenge reserves of all naitons. Expect large-scale investment over the next 5‒10 years.

3. Growth in Sovereign Wealth Funds By 2018, Sovereign Wealth Funds of countries like China, Norway, United Arab Emirates, Saudi Arabia and Singapore were worth more than $5.5 trillion, out of a total of $7.4 trillion.

China alone owned more than $1.9 trillion, much of which was in US government bonds.

Expect rapid diversification into real estate, commodities, mining, infrastructure, health care, logistics, technology companies and a wide range of other sectors, to secure China’s future.

4. Growth in value of privately owned property. In the UK alone, private real estate is now worth over $6 trillion, with house prices after a year of lockdown at a historic high, fuelled by continuing low interest rates.

People aged over 65 are sitting on more than $2 trillion of tax-free capital gains made since 1980. A significant amount will pass down generations, or become available using equity release products, over the next 10‒15 years. Expect the same in a number of other countries.

5. Central banks will take a more relaxed view of inflation but will need to recover balance sheets. Fears of deflation as a result of further shocks, will mean some central banks will err slightly more towards stimulation until they are certain that a robust post-COVID recovery is underway. 

At the same time, governments will need to restore balance sheets, which were already weakened by the earlier banking crisis, which will mean a painful combination of higher taxes and cuts in spending (together in some case with other financial wizardry, effectively printing money and devaluing their own currencies).

It will be hard enough to run balanced budgets, including loads more interest on extra debt, at higher rates probably than when in the COVID crisis, but even harder to actually save money, and reduce debt mountains.

Countries that fail to do so will be at risk when the next economic shock hits - as it surely will at some point in the next 10-20 years - possibly sooner.

6. Over 160 million new middle-class consumers ($15,000-150,000 income a year) are being created every year by economic growth, and will drive demand. 88% of new middle class entrants in the next decade will be in Asia: 380 million in India, 350 million in China, 210 million in rest of Asia and only 130 million in the whole of the rest of the world.

This process did not stop during the 2008-9 banking crisis, nor during the COVID-19 pandemic.

7. Booms and busts in huge cycles. The world’s biggest and longest bust in generations will most likely be followed at some point in 5‒10 years (after trillions more spent in COVID-19 related stimulus) by one of the world’s greatest booms.

Unless there is a further economic crisis, which postpones the eventual mega-boom and mega-bust. Expect larger and longer economic cycles until 2035.

8. Further risks of mass defaults on debt. Despite new regulations, risky financial deals are already growing rapidly again, exploiting gaps in laws, with ever more complex and cunning financial products, sold mainly by shadow banking (clusters of companies carrying out bank-like activities, without being regulated as banks).

China will be vulnerable, with over-stimulation of the economy, low borrowing costs, and unsustainable debt – even though government debt is very low compared to many developed nations.

9. Economic stimulation from next-generation technologies such as the Internet of Things, Artificial Intelligence, Smart Homes, Smart Grids, Green Tech, Biotech, Robotics and Nanotech are likely to boost the global economy by $70 trillion by 2040.

Spending on everything related to green tech and energy saving will itself exceed $40 trillion during the same period. 

10. By 2030, Asia’s combined economic output will be greater than that of Europe and America combined.

This single fact will dominate our global future.

Correcting a 1000-year cycle

We are witnessing a fundamental re-balancing of wealth across global populations. In the year 1500, India and China represented more than 50% of all global output. 

By 1900 this had dropped to only 17%, outpaced by industrial revolution in Europe.

So the process we are seeing today is part of a 500-year correction in a 1000-year cycle.  

However, the EU and US today still account for 60% of global GDP, 33% of global trade, and 42% of global sales of services.

These gigantic forces are many thousands of times more powerful than economic ups and downs related to banking, viruses or other factors, which may themselves last a few years each.

Unstable and chaotic markets

Expect an even greater backlash against globalisation in some nations, who may feel that they are being weakened by cheap products entering into their nations, or by massive, destabilising currency flows, or other market forces. Over $5.3 trillion of currencies are traded every day, yet nations like the Philippines, Peru, Poland or the UK hold less than $80bn in reserves to defend against speculators. Enough to last only a few days.

More attacks on central banks and currencies

Expect more currency attacks as large investors continue to make (and lose) huge fortunes trying to outguess volatile markets, at times hoping to undermine one central bank after another.

We will see similar attacks on commodity prices, short-selling stocks of companies, and on the stability of entire stock exchanges. 

Many Asian countries are better protected than they were a decade or more ago, with stronger reserves and alliances, but market power will continue to grow as the process of globalisation steps up a gear, with even greater connectedness.

Virtual currencies such as BitCoin will just become yet more targets for major speculative attack, with hype and gloom alternating, producing price wobbles that will continue to make and lose billions for those who enjoy gambling on such volatile things, just as I predicted over the last five years.

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