1. What will happen to the world economy
– and what this means for global business
Hamish McRae
• Five great medium-term global shifts and …
• … their implications for the world of finance
• Three big questions about the future

2. Two huge stories: globalisation …
Kofi Annan
It has been said that arguing against
globalization is like arguing against the
laws of gravity.

3. … and recession-driven debt!
Barack Obama
I found this national debt, doubled,
wrapped in a big bow waiting for me as I
stepped into the Oval Office.

4. But first: a glance back in time
• The reversal of the Industrial Revolution
• The G20 has replaced the G7 …
• … acknowledging how power is shifting to Asia
• Asia is the main source of global savings
• China is now the second largest economy …
• … India the second largest investor in the UK

6. The presentation's structure …
• First, a look at the forces behind this power shift
• Then, how the downturn speeded this shift
• The economic outlook for the next 12 months
• How the world economy might look in 2030
• Some implications for global business

7. Four great global trends
• Demography – an ageing developed world
• The environment – we still need to be greener
• Technology – an even more level playing field
• Government – under ever greater fiscal pressure

8. Ageing societies are different
• The developed world is getting "older"
• Much of the emerging world remains "young"
• So there will be a great shift of economic power
• Attitudes in the developed world will shift …
• … towards wanting greater security

11. What does this mean for business?
• Northern Europe less challenged than the "Club Med“
• Turkey benefits from its youth
• China benefits now; India's "sweet spot" is later
• Savings will continue to come from Asia
• Obvious consequences: Europe must fix its finances
• Less obvious: prizes go to those that adapt best

12. It’s good to be green
• We can glimpse the end of the oil era
• Uncertain energy supplies, coupled with …
• … huge demand from the US, China and India
• The desire for mobility will continue …
• … concerns about climate change will rise …
• … and continue to affect public policy

15. What does this mean for business?
• One quick win: the value of a “green” reputation …
• … which helps protect companies from attack …
• … provided reputation is backed by substance
• A world where resources are no longer abundant …
• … inevitably redistributes wealth and power
• Obvious beneficiaries: the raw material producers
• Less obvious: companies that are best at adapting

16. The revolution in technology
• It is (nearly) a global level playing field
• Communications technologies are universal …
• … and deeply democratic
• But technology gives global reach …
• … as well as global competition

20. What does this mean for business?
• It is not quite a level playing field but a flatter one …
• … for there are new peaks of excellence
• Northern Europe is “wired”, southern Europe less so
• Obvious issue: how does the "old" world compete?
• Less obvious: what innovations from the "new" world?
• Least obvious: what are the social changes?

21. Government in the 21st century
• There are some things only governments can do …
• … such as fight wars or rescue banks
• But huge pressures as debts and demands rise …
• … and revenues in the developed world are cut away
• The EU nations are particularly vulnerable
• The issue for all: how to do more with less?

24. What does this mean for business?
• The debt legacy will be huge for the G7
• So Western governments have to more effective …
• … which will mean rethinking their financial model …
• … using smarter regulation, not "tax 'n' spend"
• But banking will be different for a generation …
• … and there will be huge pressure on global business

25. So what happens next?
• We are well past the economic turning point …
• … and equities eventually will reflect that
• But there will be setbacks (Europe now) …
• … and the recovery will be a two-speed one
• Big question: how serious is the Eurozone crisis?

28. But there are huge risks
• European fiscal reforms will be sub-optimal …
• … probably perverse, and maybe catastrophic!
• The Eurozone may hold together this cycle …
• … though this looks less likely by the day
• If it holds together the cost is severe austerity …
• … and the inevitable break-up will be a mess

33. The world in 2020 - and beyond
• Still in the early stages of the shift of power …
• … captured by the Goldman Sachs' BRICs model
• Questions about the speed of change …
• … and the things that might go wrong
• But the broad outline seems set

35. Some key conclusions
• The shift of power to Asia is inevitable …
• … and Europe must embrace and learn from it
• The immediate economic outlook is cloudy …
• … and made cloudier by the Eurozone mess
• There will be a two-speed global expansion …
• … that will offer great opportunities for the wise

36. Some words of wisdom …
Adam Smith
It is not by augmenting the capital of the
country, but by rendering a greater part
of that capital active and productive than
would otherwise be so, that the most
judicious operations of banking can
increase the industry of the country.

37. … and some words of thanks
Alphonse de Lamartine
If one had but a single glance to give the
world, one should gaze on Istanbul.

38. What will happen to the world economy
– and what this means for global business
Hamish McRae
• Five great medium-term global shifts and …
• … their implications for the world of finance
• Three big questions about the future