By David Born and Christian Krys

In Trend 4 of the Trend Compendium 2050, we look at various aspects of the megatrend Economy & Business. We examine global economics of trade relations and value chains, shifts in geopolitical power structures, sectoral impacts of the energy transformation, and the global challenge of rising debt.

Global economics: The growth of globalization stalls – pause or trend?

The state of global economic relations is essentially the result of the interplay of three factors: global trade, foreign direct investment, and global value chains.

The so-called “Global Trade Openness” index – expressed as the ratio of total trade (exports plus imports) to global output –allows for an assessment of the state and dynamics of globalization.

The period between the end of the Second World War and the global financial crisis of 2008 was characterized by an almost uninterrupted increase in global trade openness. Post-2008, however, economists have been talking about a phase of “slowbalization”, although opinions differ as to whether this phenomenon merely signifies a brief intermission in progressive global trade relations or marks a fundamental change in globalization.

A significant cause of "slowbalization" is the growing protectionism, which is detrimental to prosperity development. Instead of increasing trade restrictions, efforts should be made to reduce them—an ambitious goal in light of the increasingly fragmented geopolitical landscape.

Economic power shifts: Emerging countries and regions are increasing their influence

Since the end of the Cold War, we have seen an increasing shift in the balance of power that characterized the period 1945-1989. Emerging markets and powers are increasingly gaining political and economic influence.

This can be illustrated particularly clearly by the distribution of global GDP between advanced economies and developing and emerging markets. Emerging and developing countries, which accounted for just over 40% of global GDP in the year 2000, now represent almost 60%. It is expected that this trend will continue, with the Asia-Pacific region continuing to gain in importance.

Green transformation: All sectors must undergo an energy transition. Without the massive expansion of renewable energy, there will be no climate-neutral future

Global economic development and the need to reduce greenhouse gas emissions must be considered together. Environmental damage and climate catastrophes jeopardize prosperity. It is therefore in the interest of business, to promote and implement the green transformation.

All sectors of the economy – from energy production , transportation, and industry to the building sector – must contribute to meeting the climate targets. In addition to converting the energy system to renewable energy sources, efficiency gains in processes are also crucial to achieving the target of net-zero CO₂ emissions by 2050.

For the net-zero emissions scenario to become a reality by 2050, analyses show that approximately 71% of primary energy demand will need to come from renewable energy sources by 2050. We also estimate that achieving net-zero by 2050 will require more than a tripling of green energy investments by 2030.

Debt challenge: Historic highs and key interest rate hikes by the ECB and the Fed make debt reduction more difficult

Debt lubricates economic development. However, global debt (private and public) has now reached historically unprecedented levels – and therefore represents a significant risk. Global debt currently stands at 238% of global GDP. Estimates assume that debt levels will continue to rise significantly in the future.

How to respond to this debt development remains controversial and a conundrum. Governments must perform a balancing act between fiscal consolidation on the one hand and growth development on the other. In this context, the developing and emerging markets also face a particular challenge. In the low interest rate environment of the past decade, many of them have accumulated substantial debt – and now face the challenge of financing rising interest payments. In Africa in particular, many countries are already spending more on interest payments than on education or health.

How companies can take advantage of megatrends

There are many levers for companies to not only cope with economic and business-related megatrends but to take advantage from them.

Companies should be prepared for increasing protectionism and rapid and unpredictable changes in the international business environment. To cope in this environment, companies should diversify their business model – both in terms of suppliers and target markets. In this context, the rise of emerging markets can also offer opportunities to tap into new markets. To remain able to act in volatile times, scenario analyses are recommended for assessing the impacts of geopolitical and trade policy developments.

There is also no turning back regarding the energy transition. Companies should make the most of their opportunities to reduce CO₂ emissions. Switching to renewable energy sources and meeting other ESG standards can offer companies financial instruments such as green bonds to reduce the cost of borrowing.