Connecting fora better future
The unbalanced economyWhat lies ahead for global economic andtrading trends?Ms Anu MadgavkarSenior Fellow McKinsey GlobalI...
Capital became increasingly cheap from the mid 1980s                                                                      ...
Average commodity prices fell substantiallyMcKinsey Commodity Price Index (years 1999–2001 = 100)1  260  240              ...
The end of the 20th century was big on promise …“The great moderation”(1980–2000)▪ Progressively cheaper  capital driving ...
Now we are moving into a new economic era“The great moderation”                         “The great uncertainty”(1980–2000)...
The last decade saw a credit boom of immense proportionsTotal debt, 1990-Q2 2011, Percentage of GDP                       ...
Yields of 10-year government bonds in the Eurozone convergedPercent   35                                                  ...
Urbanization is shifting the world’s economic centre of gravity“The great moderation”                             “The gre...
European                                                                                17%                               ...
Europe 21%                                                                                                            Chin...
McKinsey & Company | 12
McKinsey & Company | 13
Europe 21%                                                                                                                ...
McKinsey & Company | 15
2x richer     McKinsey & Company | 16
McKinsey & Company | 17
McKinsey & Company | 18
European                                                                                17%                               ...
Per capita GDP has risen in tandem with increases inthe urbanization ratePer capita GDP and urbanization1 Per capita GDP  ...
McKinsey & Company | 21
McKinsey & Company | 22
3x richer     McKinsey & Company | 23
European                                                                                13%                               ...
In developing economies, incomes are rising faster, and at a greaterscale, than at any previous point in history          ...
Aging is shifting the world’s demographic centre of gravity“The great moderation”                             “The great u...
1 out of 4advanced economy workers over 55 yearsin 2030                                   McKinsey & Company | 27
980 millionglobal retirees by 2030                          McKinsey & Company | 28
Shrinkage in labor forces of some aging                   0.5% p.a.economies                                          McKi...
Aging in advanced economies will slow GDP per capita growth, unlesswe see a large increase in productivity Contribution of...
3 out of 5net new workers from India, South Asia and Africa in 2010-30                                                   M...
China’s contribution will drop, while India and “Young Developing”economies will lead labor force growth through 2030Net n...
Education is rising rapidly in Asia - China and India will contribute morethan half of the world’s supply of new college e...
Disruptive technologies are collapsing time scales and distances at anunprecedented rate“The great moderation”            ...
More than one third of the world’s current Internet users are in Asia (andASEAN account for 7% of global user base)Estimat...
Mobile adoption in emerging economies is set to grow rapidly – ASEANwill almost match Europe by 2015 Mobile subscribers pe...
Social media has grown faster than any other media                     ILLUSTRATIVEtechnology todayTime to reach 50 millio...
The greatuncertainty         McKinsey & Company | 38
The next decade or more looks very different“The great moderation”                           “The great uncertainty”(1980–...
By 2025, the consuming class will swell to 4.2 billion people.Consumption in Asia will account for $22 trillion – nearly o...
Developed economiesNearly half of global growth by 2025 will be                                                           ...
Meeting rising consumer demand requires cities to invest on urbaninfrastructureAsia’s estimated sector size , 2025%       ...
The next decade or more looks very different“The great moderation”                           “The great uncertainty”(1980–...
SOURCE: Economist Intelligence Unit; Global Insight; McKinsey Global Economic Growth Database; Oxford Economics; World    ...
By 2020, emerging markets’ share of financial assets is projected todoubleTotal financial assets, 2010–20F%; $ trillion   ...
In emerging markets, savers put their money primarily into depositsAsset allocation by investor, 2010%; $ trillion        ...
Lower investor demand for equities could fall                                                            Incremental deman...
The next decade or more looks very different“The great moderation”                           “The great uncertainty”(1980–...
Commodity prices have increased sharply since 2000, erasing all thedeclines of the 20th century. . .McKinsey Global Instit...
These resource trends pose several risks to global growth and welfare                  IMF estimates that a 10 percent inc...
The next decade or more looks very different“The great moderation”                           “The great uncertainty”(1980–...
75 millionyoung people are unemployed worldwidein 2011, comprising 40% of globalunemployment                              ...
youth unemployment in Spain, 20-25% in MENA                                                                50%Jobless grad...
1 billion               Workers in the global labor force in 2010               without secondary education               ...
The world is likely to have too few high-skill workers                                                                   %...
Wages of college graduates grew        2 times faster than those of high school graduates in the US from 1963 to 2008     ...
Unemployment rates of low-skill workers were                   2 to 3 times              those of high-skill workers acros...
The next decade or more looks very different“The great moderation”                           “The great uncertainty”(1980–...
By 2014, only Germany will be below                                                                                       ...
Restoring government debt to 60 percent of GDP by 2030 will requirepainful fiscal adjustment in many countriesFiscal tight...
The next decade or more looks very different“The great moderation”                           “The great uncertainty”(1980–...
Without a productivity boost, younger generations will seeless improvement in their standard of livingUS Improvement in pe...
Are you readyfor the future?          McKinsey & Company | 63
ASEAN on trajectory to be the 5th largest region by 2050                                                     xx    GDP gro...
ASEAN 6 has strong labour productivity potentialUSD Productivity growth                                                   ...
Top 5 sectors will generate the bulk of incremental economic growth inASEAN                                               ...
XX City population, millions,Top 7 ASEAN cities represent one third of GDP in 2025                                        ...
Questions to consider…                   Business portfolio          How will business units perform in                   ...
What this means for leaders in ASEAN            Time to be BOLD            Build LEADERS of the future            Manage R...
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Keynote one – the unbalanced economy and the next 30 years

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Any previous idea of 'balance' based on the dominance of the West and established trading dynamics has already been seriously challenged. Now, it should be discarded. Future economic growth will come primarily from Asia and its speed in some economies will be astounding. Urbanisation will set the pattern of major demand centres. Individual wealth will grow, sometimes astonishingly. But so will disparities. Organisations that are serious about globalising successfully will need to understand where the action is happening and how to connect to it effectively. And the old assumptions of cheap capital and freely available resources will need to be discounted.

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Keynote one – the unbalanced economy and the next 30 years

  1. 1. Connecting fora better future
  2. 2. The unbalanced economyWhat lies ahead for global economic andtrading trends?Ms Anu MadgavkarSenior Fellow McKinsey GlobalInstitute (MGI)
  3. 3. Capital became increasingly cheap from the mid 1980s Nominal values Ex-post real values2Long-term interest rates in developed economies, 1975–2009Yield to redemption on long-term government bonds1%, GDP-weighted 14 12 10 8 6 4 2 0 1975 1980 1985 1990 1995 2000 2005 20101 10-year government bonds where available.2 Calculated as nominal yield on 10-year bonds in current year minus average realized inflation over next 10 years. We use OECD estimates of inflation in 2009–19 to estimate real interest rates in 2000–09.SOURCE: International Monetary Fund International Financial Statistics; Organisation for Economic Co-operation and McKinsey & Company | 3 Development; McKinsey Global Institute
  4. 4. Average commodity prices fell substantiallyMcKinsey Commodity Price Index (years 1999–2001 = 100)1 260 240 World War I 220 1970s oil shock 200 180 World War II 160 140 -48% 120 100 Postwar Great 80 depression Depression 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 20001 Based on arithmetic average of 4 commodity sub-indices of food (coffee, cocoa, tea, rice, wheat, maize, sugar, beef, lamb, bananas and palm oil), agricultural raw materials (cotton, jute, wool, hides, tobacco, rubber and timber), metals (steel, aluminum, tin, copper, silver, lead and zinc), and energy (oil, coal, and gas) with each sub-index weighted by total world export volumes 1999–2001 at indexed prices over the same time period in real.SOURCE: Grilli and Yang; Stephan Pfaffenzeller; World Bank; International Monetary Fund; OECD; UN Food and Agriculture McKinsey & Company | 4 Organization; UN Comtrade; McKinsey Global Institute analysis
  5. 5. The end of the 20th century was big on promise …“The great moderation”(1980–2000)▪ Progressively cheaper capital driving asset price growth (and leverage)▪ Cheaper resources▪ Cheaper labor - “demographic dividend” driving economic growth▪ Governments privatizing, cutting taxes, and promising more▪ Each generation “richer than their parents” McKinsey & Company | 5
  6. 6. Now we are moving into a new economic era“The great moderation” “The great uncertainty”(1980–2000) Trend break (2010-2030)▪ Progressively cheaper capital driving asset price growth (and leverage) Debt crisis▪ Cheaper resources▪ Cheaper labor - “demographic dividend” driving economic growth▪ Governments privatizing, cutting taxes, and promising more▪ Each generation “richer than their parents” McKinsey & Company | 6
  7. 7. The last decade saw a credit boom of immense proportionsTotal debt, 1990-Q2 2011, Percentage of GDP Change 2000-08 550 Percentage points 500 450 Japan 37 United Kingdom 177 400 Spain 145 350 France 89 300 Italy 68 250 South Korea 91 200 United States 75 150 Germany 7 Australia 77 100 Canada 39 0 1990 92 94 96 98 2000 02 04 06 08 Q2 20111 Includes all loans and fixed-income securities of households, corporations, financial institutions, and government.2 Defined as an increase of 25 percentage points or more.3 Or latest available.SOURCE: Haver Analytics; national central banks; McKinsey Global Institute McKinsey & Company | 7
  8. 8. Yields of 10-year government bonds in the Eurozone convergedPercent 35 Greece Introduction Lehman 30 of the Euro bankruptcy 25 20 15 Portugal 10 Ireland Italy 5 Spain France Germany 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2011SOURCE: Bloomberg; Eurostat McKinsey & Company | 8
  9. 9. Urbanization is shifting the world’s economic centre of gravity“The great moderation” “The great uncertainty”(1980–2000) Trend break (2010-2030)▪ Progressively cheaper capital driving asset price growth (and leverage) Debt crisis▪ Cheaper resources Urbanization▪ Cheaper labor - “demographic dividend” driving economic growth▪ Governments privatizing, cutting taxes, and promising more▪ Each generation “richer than their parents” McKinsey & Company | 9
  10. 10. European 17% cities BRICS 15% cities North American 20% cities OECD Asia-Pacific 9% cities Other 9% cities 2000NOTE: Artistic impression; not to be used for navigation. Non-urban GDP 30%SOURCE: McKinsey Global Institute analysis using data from Angus Maddison, NASA, and MGI Cityscope McKinsey & Company | 10
  11. 11. Europe 21% China 25% The action was in Asia India 32% Other1 11% Rest of 11% Asia1 Including North America. 1 ADNOTE: Artistic impression; not to be used for navigation.SOURCE: McKinsey Global Institute analysis using data from Angus Maddison, NASA, and MGI Cityscope McKinsey & Company | 11
  12. 12. McKinsey & Company | 12
  13. 13. McKinsey & Company | 13
  14. 14. Europe 21% China 25% India 25% Other* 14% Rest of 15% Asia1 Including North America. 1500NOTE: Artistic impression; not to be used for navigation.SOURCE: McKinsey Global Institute analysis using data from Angus Maddison, NASA, and MGI Cityscope *Including North America McKinsey & Company | 14
  15. 15. McKinsey & Company | 15
  16. 16. 2x richer McKinsey & Company | 16
  17. 17. McKinsey & Company | 17
  18. 18. McKinsey & Company | 18
  19. 19. European 17% cities China and 11% North India American 20% (total) cities OECD Asia-Pacific 9% cities Other 13% cities 2000NOTE: Artistic impression; not to be used for navigation. Non-urban GDP 30%SOURCE: McKinsey Global Institute analysis using data from Angus Maddison, NASA, and MGI Cityscope McKinsey & Company | 19
  20. 20. Per capita GDP has risen in tandem with increases inthe urbanization ratePer capita GDP and urbanization1 Per capita GDP Germany United States 1990 PPP $ (log scale)2 2005 2005 30,000 Japan Italy 2005 United Kingdom 2005 2005 South Korea 2005 10,000 China 2005 1939 India 2005 Brazil 2005 3,000 1950 1950 1860 1820 1,000 1891 1930 1950 1920 1950 300 0 10 20 30 40 50 60 70 80 90 Urban population, %1 Definition of urbanization varies by country; pre-1950 figures for the United Kingdom are estimated.2 Historical per capita GDP series expressed in 1990 Geary-Khamis dollars, which reflect PPP.SOURCE: Population Division of the United Nations; Angus Maddison via Timetrics; Global Insight; Census reports of McKinsey & Company | 20 England and Wales; Honda in Steckel & Floud, 1997; Bairoch, 1975
  21. 21. McKinsey & Company | 21
  22. 22. McKinsey & Company | 22
  23. 23. 3x richer McKinsey & Company | 23
  24. 24. European 13% cities Chinese and Indian 25% North cities American 14% cities OECD Asia-Pacific 6% cities Other 17% cities 2025NOTE: Artistic impression; not to be used for navigation. Other GDP 25%SOURCE: McKinsey Global Institute analysis using data from Angus Maddison, NASA, and MGI Cityscope McKinsey & Company | 24
  25. 25. In developing economies, incomes are rising faster, and at a greaterscale, than at any previous point in history Years to double per capita GDP1 Population at start 1700 1800 1900 2000 of growth period Country Million United Kingdom 154 9 United States 53 10 Germany 65 28 Japan 33 48 South Korea 10 27 China 12 1,023 India 16 8401 Time to increase per capita GDP in purchasing power parity (PPP) terms from $1,300 to $2,600.SOURCE: Angus Maddison; University of Groningen; Resource Revolution: Meeting the world‟s energy, materials, food, and McKinsey & Company | 25 water needs, McKinsey Global Institute, 2011.
  26. 26. Aging is shifting the world’s demographic centre of gravity“The great moderation” “The great uncertainty”(1980–2000) Trend break (2010-2030)▪ “Demographic dividend” driving economic growth in OECD Debt crisis▪ Progressively cheaper Urbanization capital driving asset price growth (and leverage) Aging▪ Cheaper resources and labor▪ Governments privatizing, cutting taxes, and promising more▪ Each generation “richer than their parents” McKinsey & Company | 26
  27. 27. 1 out of 4advanced economy workers over 55 yearsin 2030 McKinsey & Company | 27
  28. 28. 980 millionglobal retirees by 2030 McKinsey & Company | 28
  29. 29. Shrinkage in labor forces of some aging 0.5% p.a.economies McKinsey & Company | 29
  30. 30. Aging in advanced economies will slow GDP per capita growth, unlesswe see a large increase in productivity Contribution of share of working-age population growth to yearly GDP per capita growth Percentage points 0.3 Japan -0.2 -0.3 1.0 -0.6 -0.7 0.6 0.2 China -0.3 -0.3 0.4 EU-15 0 -0.1 -0.3 -0.5 United 0 0.1 States -0.1 -0.3 -0.4 1980–90 1990–2000 2000–10 2010–20 2020–30SOURCE: United Nations Population Division McKinsey & Company | 30
  31. 31. 3 out of 5net new workers from India, South Asia and Africa in 2010-30 McKinsey & Company | 31
  32. 32. China’s contribution will drop, while India and “Young Developing”economies will lead labor force growth through 2030Net new additions to labor force%; million workers Russia Young Young Advanced & CEE Developing India China Middle-Income economies1 China and India contributed more than1990–2010 -1 20 19 18 33 11 706 a third of global labor force growth “Young Developing” economies and India will contribute almost2010–30E -2 30 28 13 26 5 615 60% of global labor force; ASEAN countries will contribute 10% 100%1 Includes Young Advanced, Aging Advanced and Southern Europe clusters.NOTE: Numbers may not sum due to rounding.SOURCE: United Nations population division (2010 revision); ILO; Global Insight; Oxford Economics; Economist; McKinsey & Company | 32 local statistics for China and India; McKinsey Global Institute analysis
  33. 33. Education is rising rapidly in Asia - China and India will contribute morethan half of the world’s supply of new college educated workers Net labor force additions with college education %; million workers 197 325 Share of advanced Advanced 14 economies is likely to decline 26 economies1 18 Young 23 Middle-Income 30 China and India together are likely to contribute 57 percent of China2 26 the growth in workers with some college education India3 27 12 Young Developing 8 ASEAN to contribute ~8% Russia & CEE 10 4 2 or 27 mn workers with college education 1990–2010 2010–30E1 Includes Young Advanced, Aging Advanced and Southern Europe clusters2 In China, currently ~60% of students completing secondary school enrol for tertiary education, assuming it to maintain this trend; In India, the ratio is 50% today, which is expected to increase to 65% by 20303 Drop out rates are assumed to remain constant for China, for India it is expected to decline from 47% to 40% by 2030Note: Numbers may not sum due to rounding McKinsey & Company | 33SOURCE: United Nations Population Division (2010 revision); ILO; IIASA; local statistics for China and India; McKinsey Global Institute analysis
  34. 34. Disruptive technologies are collapsing time scales and distances at anunprecedented rate“The great moderation” “The great uncertainty”(1980–2000) Trend break (2010-2030)▪ “Demographic dividend” driving economic growth in OECD Debt crisis▪ Progressively cheaper Urbanization capital driving asset price growth (and leverage) Aging▪ Cheaper resources and labor Disruptive▪ Governments privatizing, technologies cutting taxes, and promising more▪ Each generation “richer than their parents” McKinsey & Company | 34
  35. 35. More than one third of the world’s current Internet users are in Asia (andASEAN account for 7% of global user base)Estimated Internet users CAGR %Million users 2005–10 2010–15 2,662 Africa 45 12 97 147 MENA 22 14 265 LatAm 19 9 1,869 298 NA 55 4 1 76 173 509 EU 8 4 278 976 418 28 9 71 229 1,346 Asia 19 9 278 869 362Share of globalInternet users from… 2005 2010 2015 forecast Internet users in% ASEAN countries set toAspiring countries1 33 52 61 grow at 14% p.a. in 2010-15ASEAN 5 6 81 Includes Algeria, Argentina, Brazil, Chile, China, Colombia, Czech Republic, Hungary, India, Indonesia, Kazakhstan, Malaysia, Mexico, Nigeria, Pakistan, Poland, Romania, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, Ukraine, Vietnam. Data unavailable for Morocco from this source.SOURCE: Economist Intelligence Unit (EIU) World Data; International Telecommunications Union (ITU, Business Monitor McKinsey & Company | 35 International (BMI), McKinsey analysis
  36. 36. Mobile adoption in emerging economies is set to grow rapidly – ASEANwill almost match Europe by 2015 Mobile subscribers per 100 people CAGR % 140 2005–10 2010–15 120 Africa 31 9 Asia 24 8 100 EU 9 2 80 Lat Am 17 6 MENA 27 5 60 NA 7 2 40 ASEAN 29 7 20 0 ‟05 ‟06 ‟07 ‟08 ‟09 ‟10 ‟11 12E ‟13E ‟14E ‟15ESOURCE: International Telecommunications Union (ITU, Business Monitor International (BMI), McKinsey analysis McKinsey & Company | 36
  37. 37. Social media has grown faster than any other media ILLUSTRATIVEtechnology todayTime to reach 50 million users 50 million usersRadio 38 years TV 13 years iPod 4 years Internet 3 years Facebook 1 year Twitter 9 monthsSOURCE: Various press reports McKinsey & Company | 37
  38. 38. The greatuncertainty McKinsey & Company | 38
  39. 39. The next decade or more looks very different“The great moderation” “The great uncertainty”(1980–2000) Trend break (2010–30)▪ “Demographic dividend” ▪ Emerging markets will driving economic growth drive global growth and in OECD Debt crisis increases in wealth▪ Progressively cheaper Urbanization capital driving asset price growth (and leverage) Aging▪ Cheaper resources and labor Disruptive▪ Governments privatizing, technologies cutting taxes, and promising more▪ Each generation “richer than their parents” McKinsey & Company | 39
  40. 40. By 2025, the consuming class will swell to 4.2 billion people.Consumption in Asia will account for $22 trillion – nearly one third of theglobal totalWorld population World consumptionBillions $ Trillions 7.9 64 Eastern Europe 5 Latin America 6.8 6 Middle East & 2 Consuming 1 North Africa 2.4 4.2 5.2 class1 Sub Saharan Africa 38 17 US & Canada 1.2 2 3.7 3 1 1 0.9 12 Western Europe 2.5 12 0.3 4.4 Below 4.0 3.7 consuming 2.8 9 class1 22 Asia 2.2 9 1950 1970 1990 2010 20252 2010 20253 McKinsey & Company | 40
  41. 41. Developed economiesNearly half of global growth by 2025 will be Emerging marketin “middleweight” cities in emerging markets megacities Emerging market middleweight cities Emerging market smallContribution to global GDP growth cities and rural areas% GDP, 2010 GDP growth, 2010–253 100% = $62.7 trillion USD RER 100% = $50.2 trillion USD RER 12 13 26 Small 12 12 13 38 19 Midsized 4 Small 30 Large 3 68 64 49 11 5 9 10 Large Midsized1 Megacities are defined as metropolitan areas with ten million or more inhabitants. Middleweights are cities with populations of between 150,000 and ten million inhabitants.2 Includes all 2,600+ cities from McKinsey Global Institute Cityscope database.3 Real exchange rate (RER) for 2010 is the market exchange rate. RER for 2025 was predicted from differences in the per capita GDP growth rates of countries relative to the US.Note: Numbers may not sum due to roundingSOURCE: McKinsey Global Institute Cityscope 2.0 McKinsey & Company | 41
  42. 42. Meeting rising consumer demand requires cities to invest on urbaninfrastructureAsia’s estimated sector size , 2025% 100% = 574 46 144 214 4 11 30 48 Growth, 2010–25 65 60 89 70 52 2010 total 35 40 Container GDP at RER Building floor Municipal Population volume $ trillion space water Billion Million Thousand demand people TEU1 sq. km.2 Billion cubic metersCAGR, 2010–25 7.3 6.3 4.5 2.4 0.8%1 TEU stands for twenty-foot equivalent unit, used to describe the capacity of container ships.2 Building floor space growth includes floor space replacement.SOURCE: McKinsey Global Institute Cityscope 2.0 McKinsey & Company | 42
  43. 43. The next decade or more looks very different“The great moderation” “The great uncertainty”(1980–2000) Trend break (2010–30)▪ “Demographic dividend” ▪ Emerging markets will driving economic growth drive global growth and in OECD Debt crisis increases in wealth▪ Progressively cheaper Urbanization ▪ More expensive capital capital driving asset price growth (and leverage) Aging▪ Cheaper resources and labor Disruptive▪ Governments privatizing, technologies cutting taxes, and promising more▪ Each generation “richer than their parents” McKinsey & Company | 43
  44. 44. SOURCE: Economist Intelligence Unit; Global Insight; McKinsey Global Economic Growth Database; Oxford Economics; World McKinsey & Company | 44 Development Indicators of the World Bank; MGI Capital Supply & Demand Model; McKinsey Global Institute
  45. 45. By 2020, emerging markets’ share of financial assets is projected todoubleTotal financial assets, 2010–20F%; $ trillion Other emerging 113.1 198.1 391.5 3 4 11 China 5 19 10 Other developed 19 9 17 Japan 14 9 Western Europe 34 9 27 22 United States 35 29 24 2000 2010 2020F Emerging 8 41 141 markets’ financial assets $ trillion1 Measured in 2010 exchange rates.2 Rapid growth in emerging markets but low growth through 2015 in mature economies.3 Emerging markets‟ currencies appreciate vis-à-vis the US dollar.SOURCE: McKinsey Global Institute McKinsey & Company | 45
  46. 46. In emerging markets, savers put their money primarily into depositsAsset allocation by investor, 2010%; $ trillion Traditional investors Emerging investors 42.0 28.3 2.7 3.5 6.5 1.8Other 5 2 5 8Cash and 18deposits 39Fixed 30 65 54 77 81income 23Equities 47 14 24 34 5 13 18 14 14 10 US house- Western MENA Latin Chinese Emerging holds and Europe house- American house- Asian pensions house- holds house- holds house- holds and holds holds pensionsCompound 4 3 23 16 16 14annualgrowth rate,2000–10 (%)SOURCE: McKinsey Global Institute McKinsey & Company | 46
  47. 47. Lower investor demand for equities could fall Incremental demand for equitiesshort of corporate needs by US$12.3 trillion Increase in corporate equity needsIncremental demand for equities by domestic investors vs. increase in corporate equityneeds, 2010–20F$ trillion; 2010 exchange rates 37.4 9.8 United States -12.3 9.2 25.1 2.8 Western Europe1 5.9 4.3 Other developed2 3.9 4.7 China 7.9 Incremental Increase in 3.5 Other emerging3 demand for corporate 10.5 equities equity needs1 France, Germany, Italy, Spain, and the United Kingdom.2 Australia, Canada, Japan, and South Korea.3 Brazil, India, Indonesia, Mexico, Russia, South Africa, and Turkey.SOURCE: McKinsey Global Institute McKinsey & Company | 47
  48. 48. The next decade or more looks very different“The great moderation” “The great uncertainty”(1980–2000) Trend break (2010–30)▪ “Demographic dividend” ▪ Emerging markets will driving economic growth drive global growth and in OECD Debt crisis increases in wealth▪ Progressively cheaper Urbanization ▪ More expensive capital capital driving asset price growth (and leverage) ▪ More expensive and Aging volatile resource prices▪ Cheaper resources and labor Disruptive▪ Governments privatizing, technologies cutting taxes, and promising more▪ Each generation “richer than their parents” McKinsey & Company | 48
  49. 49. Commodity prices have increased sharply since 2000, erasing all thedeclines of the 20th century. . .McKinsey Global Institute Commodity Price Index (years 1999–2001 = 100)1260240 World War I220 1970s oil shock200180 World War II160140120100 80 Postwar Great depression Depression 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 201121 See Resource Revolution: Meeting the world‟s energy, materials, food, and water needs for details on the McKinsey Global Institute Commodity Price Index2 2011 prices are based on the average of the first eight monthsSOURCE: Grilli and Yang; Stephan Pfaffenzeller; World Bank; International Monetary Fund; OECD; UN Food and Agriculture McKinsey & Company | 49 Organization; UN Comtrade; McKinsey Global Institute analysis
  50. 50. These resource trends pose several risks to global growth and welfare IMF estimates that a 10 percent increase in the price of crude reduces global GDP by 0.2%-0.3% in one year World Bank estimates that recent food price increases drove 44 million people into poverty Just four countries – Iran, Iraq, Saudi Arabia, and Venezuela – hold almost 50 percent of known oil reserves A recent study by the Economics of Climate Adaptation Working Group suggests that some regions are at risk of losing up to 12 percent of their annual GDP by 2030 as a result of existing climate patterns McKinsey & Company | 50
  51. 51. The next decade or more looks very different“The great moderation” “The great uncertainty”(1980–2000) Trend break (2010–30)▪ “Demographic dividend” ▪ Emerging markets will driving economic growth drive global growth and in OECD Debt crisis increases in wealth▪ Progressively cheaper Urbanization ▪ More expensive capital capital driving asset price growth (and leverage) ▪ More expensive and Aging volatile resource prices▪ Cheaper resources and ▪ Growing labor market labor Disruptive mismatches and inequality▪ Governments privatizing, technologies cutting taxes, and promising more▪ Each generation “richer than their parents” McKinsey & Company | 51
  52. 52. 75 millionyoung people are unemployed worldwidein 2011, comprising 40% of globalunemployment McKinsey & Company | 52
  53. 53. youth unemployment in Spain, 20-25% in MENA 50%Jobless graduates demand jobs in Cairo, Egypt and denounce governments inability to provide employment opportunities to the countrys youth. McKinsey & Company | 53PHOTO - Hussein Malla/AP
  54. 54. 1 billion Workers in the global labor force in 2010 without secondary education McKinsey & Company | 54Photo CREDIT: All rights reserved with Eric Lafforgue ©
  55. 55. The world is likely to have too few high-skill workers % of supply of skill cohortand not enough jobs for low-skill workers % of demand for skill cohortGap between demand and supply of workers by educational attainment, 2020EMillion workersShortages Surpluses High-skill workers Medium-skill workers Low-skill workers1 Total 38– 13 Total 15 Total 89– 10 45 shortage 41 shortage surplus 94 In In 16– 10 In 32– advanced 13 10 advanced 11 18 India 35 economies2 economies In India and In Young Young In China 23 16 Developing 31 19 58 10 Developing economies3 economies1 Low-skill defined in advanced economies as no post-secondary education; in developing, low skill is primary education or less.2 25 countries from the analyzed set of 70 countries, that have GDP per capita greater than US$ 20,000 at 2005 purchasing power parity (PPP) levels in 2010.3 11 countries from the analyzed set of 70 countries, from South Asia and sub-Saharan Africa, with GDP per capita less than $3,000 at 2005 PPP levels in 2010.SOURCE: McKinsey Global Institute analysis McKinsey & Company | 55
  56. 56. Wages of college graduates grew 2 times faster than those of high school graduates in the US from 1963 to 2008 McKinsey & Company | 56
  57. 57. Unemployment rates of low-skill workers were 2 to 3 times those of high-skill workers across advanced economiesJob seekers check for employment opportunities. The majority of Americas unemployed have been out of work so long they no longer qualify for unemployment McKinsey & Company | 57benefits. (AP File Photo)
  58. 58. The next decade or more looks very different“The great moderation” “The great uncertainty”(1980–2000) Trend break (2010–30)▪ “Demographic dividend” ▪ Emerging markets will driving economic growth drive global growth and in OECD Debt crisis increases in wealth▪ Progressively cheaper Urbanization ▪ More expensive capital capital driving asset price growth (and leverage) ▪ More expensive and Aging volatile resource prices▪ Cheaper resources and ▪ Growing labor market labor Disruptive mismatches and inequality▪ Governments privatizing, technologies ▪ More government cutting taxes, and intervention, fiscal promising more austerity, and debt crises▪ Each generation “richer than their parents” McKinsey & Company | 58
  59. 59. By 2014, only Germany will be below 2000Ethe “danger line” 2014EGross government debt, 2000E, 2014E% of GDP 246 158 130 120 123 112 114 118 >90% 107 91 93 87 “Danger 77 76 Zone” 59 60 63 45 44 28 Japan Greece Italy United France Portugal United Germany Ireland Spain States KingdomNon-resident 6.6 58.4 43.7 28.7 59.0 50.6 27.3 51.6 59.1 42.6holding ofgeneralgovernmentdebt 2011% of total debtSOURCE: International Monetary Fund; McKinsey Global Institute McKinsey & Company | 59
  60. 60. Restoring government debt to 60 percent of GDP by 2030 will requirepainful fiscal adjustment in many countriesFiscal tightening required 2011–20 to meet gross government debt target of 60 percent of GDP by 2030% of GDPJapan 18.2United States 10.9Ireland 10.7Spain 7.9United Kingdom 7.5Greece 7.3Netherlands 5.3France 5.0Belgium 4.4Italy 4.4Canada 4.0Australia 3.9Portugal 3.8Germany 0.3Switzerland -1.4 Required adjustment for G20 countries1 Japan‟s target for fiscal adjustment is set at 80 percent of GDPNOTE: Countries are assumed to undergo a gradual transition in their primary balance over 2011–20 and maintain a constant primary balanceafter 2020.SOURCE: International Monetary Fund; McKinsey Global Institute McKinsey & Company | 60
  61. 61. The next decade or more looks very different“The great moderation” “The great uncertainty”(1980–2000) Trend break (2010–30)▪ “Demographic dividend” ▪ Emerging markets will driving economic growth drive global growth and in OECD Debt crisis increases in wealth▪ Progressively cheaper Urbanization ▪ More expensive capital capital driving asset price growth (and leverage) ▪ More expensive and Aging volatile resource prices▪ Cheaper resources and ▪ Growing labor market labor Disruptive mismatches and inequality▪ Governments privatizing, technologies ▪ More government cutting taxes, and intervention, fiscal promising more austerity, and debt crises▪ Each generation “richer ▪ Some people will be poorer than their parents” than their parents McKinsey & Company | 61
  62. 62. Without a productivity boost, younger generations will seeless improvement in their standard of livingUS Improvement in per capita GDP by year of birth1Indexed to 100 40-year growth in Birth per capita GDP Forecast year Multiplier260 1960 2.54x240220 2.04x 1970200 1.96x 1980180 1990 1.78x160 2000 1.63x140120100 0 5 10 15 20 25 30 35 40 Years from birth1 GDP data for 2010–15 based on McKinsey and Moody‟s consensus projections; 1.7% productivity growth assumed thereafter in line with historical rate; share of working-age population will decline with UN projections (66% in 2009; 60% in 2030).SOURCE: US Bureau of Economic Analysis; US Census Bureau; Moody‟s Economy.com; McKinsey analysis McKinsey & Company | 62
  63. 63. Are you readyfor the future? McKinsey & Company | 63
  64. 64. ASEAN on trajectory to be the 5th largest region by 2050 xx GDP growth CAGR4USD billions, 2005 currency, percent in the interim period CAGR CAGR 1980 Real GDP 1980-09 2010 Real GDP 2010-50 2050 Real GDP US and Canada 6,407 2.7 US and Canada 14,451 2.6 US and Canada 40,097 EU 5,980 3.02 EU 14,317 1.7 China and HK 39,428 Japan 2,410 2.2 Japan 4,581 0.5 EU 28,569 Africa 520 3.0 China and HK 4,047 5.9 India 10,619 Brazil 513 2.6 Africa 1,256 3.9 ASEAN 5,892 5 Oceania 379 3.2 India 1,228 5.5 Africa 5,707 Gulf Cooperation 341 2.9 ASEAN 1,168 7 4.1 Japan 5,598 Council China and HK 268 9.5 Brazil 1,096 3.8 Brazil 4,846 ASEAN 259 9 5.1 S. Korea 1,015 2.6 Mexico 4,416 India 205 6.1 Oceania 972 2.6 GCC 3,132 S. Korea 173 6.3 Mexico 927 4.0 S. Korea 2,853 Russia 1 N/A 5.73 Russia 905 2.6 Oceania 2,715 Mexico N/A 2.62 GCC 794 3.5 Russia 2,5601 1993 - 626 Bn USD (1980 data not available) 2 1991-2010 growth3 1993-2010 growth 4 CAGR is compound annual growth rateSOURCE: Global Insight; McKinsey analysis McKinsey & Company | 64
  65. 65. ASEAN 6 has strong labour productivity potentialUSD Productivity growth Productivity, Percent, 2000-2010 Size represents GDP 2010 11 Real GDP per Growth worker, USD Percent, 10 China Country „000 2000-10 9 Singapore 66.7 3.0 8 7 Malaysia 15.1 2.1 6 India Thailand 5.5 2.5 5 4 Russia Indonesia 3.4 3.6 Turkey United States 3 ASEAN 2 Africa Philippines 3.4 1.1 Japan 1 Brazil Mexico Vietnam 1.5 5.0 0 EU-12 -1 ASEAN 4.6 2.9 0 10 20 30 40 50 60 70 80 90 100 Total1 Productivity, 2010 Real GDP per worker, thousands1 Only for top 6 ASEAN countries, accurate projections unavailable for other 4 countriesSOURCE: Global Insight; EIU World data McKinsey & Company | 65
  66. 66. Top 5 sectors will generate the bulk of incremental economic growth inASEAN Value added Growth CAGR Sectors 20103, USD billions 2010-20, Percent Manufacturing 308 5.1 Wholesale and Retail Trade 155 5.2 Agriculture 106 3.2 Top 5 growth Real Estate and Construction 122 5.3 sectors contribute Transport, Storage & Comm 102 6.1 ~70% of total GDP Mining 70 3.1 Financial Intermediation 67 5.6 Others1 194 4.7 Total 1,124 4.91 Inclyudes Energy/Utilities, Public servicesSOURCE: WIS (Global Insight); McKinsey analysis McKinsey & Company | 66
  67. 67. XX City population, millions,Top 7 ASEAN cities represent one third of GDP in 2025 2025 XX Percent of country GDP 2025City GDP at RER1, 2025 represented by key city(s)USD billions Key citiesMalaysia 12 Vietnam 34 Kuala HCM 56 2.2 City 71 9.7 Myanmar Hanoi Lumpur George Laos Hanoi 27 4.7 41 2.1 Bangladesh Philippines Town Johor Thailand Can Tho 10 1.8 33 1.6 Manila Bahru Bangkok Vietnam Cambodia Ipoh 23 1.2 Ho Chi Minh City Malaysia Philippines 35Indonesia 12 Kuala Lumpur Manila 157 17.1 Singapore Jakarta 218 12.8 Cebu 29 3.7 Surabaya 64 3.6 Sumatra Davao 22 3.4 Jakarta Bekasi 43 3.2 Pekan 39 1.5 Thailand 43 Baru GDP 2025 # cities USD billions Share Bang- >5 MM 5 kok 300 9.4 Top 7 cities 1,283 30% 1-5 MM 16 Singapore 100 Other large cities 1,351 32% Samut 0.5-1 MM 37 Prakan 29 1.6 S&R2 1,606 38% 0.2-0.5 MM 85 Nakhon Singapore 413 Total 4,239 Total 143 Ratcha- 16 5.8 0.9 sima1 Predicted real exchange rates.2 Small cities and rural areas. Small cities are those with less than 200,000 inhabitants in 2010. McKinsey & Company | 67SOURCE: McKinsey Global Institute Cityscope database 2.1
  68. 68. Questions to consider… Business portfolio How will business units perform in a world of higher cost capital and resources? What is their need for cash and exposure to liquidity risks? Operations Higher cost of capital will require higher operating returns to generate same value-added. Return on invested capital will become increasingly important Market position What do you see as the major uncertainties for demand/prices going forward? Are these currently factored into industry decision making? Are you in the right geographies? Talent management Are you prepared for more intense global competition for high-skill workers? How will your global footprint and talent management strategies reflect this? Competitive landscape How well are you prepared for the uncertain world compared to your competitors? What new opportunities could emerge in a more volatile environment? McKinsey & Company | 68
  69. 69. What this means for leaders in ASEAN Time to be BOLD Build LEADERS of the future Manage RISK INNOVATE to execute faster, cheaper Partner with GOVERNMENTS and other stakeholders McKinsey & Company | 69
  70. 70. Connecting fora better future
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