global macro trends: today & tomorrow car… · global inequality has fallen due to rise of...
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Global Macro Trends: Today & TomorrowJames Carrick / Chris Jeffery
Global Economist / Asset Allocation Strategist
Legal and General Investment Management
30 October 2018
Global Macro Trends: Today & TomorrowGlobalisation, Technology, Demographics, Populism
30 October 2018
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$3 trn
$17 trn
UK EU World
$80 trn
GDP (2017)
Source: IMF
Notes from a Small Island
The impact of four waves
4
GLOBALISATION TECHNOLOGY DEMOGRAPHICS POPULISM
Global growth… we’ve never had it so good?
5
GLOBALISATION
Source: IMF, Maddisson Project Database, LGIM
Driven by specialisation and trade
6Source: https://ourworldindata.org/wp-content/uploads/2013/05/ourworldindata_world-trade-over-5-centuries.png
GLOBALISATION
Globalisation and urbanisation
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Tokyo 38
Delhi 26
Shanghai 24
São Paulo 21
Mumbai 21
Mexico City 21
Beijing 20
Osaka 20
Cairo 19
New York 19
Dhaka 18
Karachi 17
Buenos Aires 15
Kolkata 15
Istanbul 14
Population (million)
2015Tokyo 37
Delhi 36
Shanghai 31
Mumbai 28
Beijing 28
Dhaka 27
Karachi 25
Cairo 25
Lagos 24
Mexico City 24
São Paulo 23
Kinshasa 20
Osaka 20
New York 20
Kolkata 19
Guangzhou 18
Population (million)
2030
GLOBALISATION
Source: UN Urbanisation Prospects, 2014
0%
20%
40%
60%
80%
100%
120%
Emerging markets (E7) Developed markets (G7)
8
GLOBALISATION
The cost advantage in emerging markets
is hard to ignore
Implied PPP price level
vs. G7 average (2018)
Source: IMF, LGIM
9
Catch-up of emerging markets
0
10
20
30
40
50
60
70
80
90
100
2016 2030 2045
E7
G7
GDP at market exchange rates, Constant 2016 prices, Trillion US$
The future’s bright … the future’s emerging
Source: PWC, The World in 2050
GLOBALISATION
Energy… a scarce resource or a technology?
10Source: Getty images
TECHNOLOGY
Global warming…
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Massive changes needed to limit global temperature rise
Source: https://commons.wikimedia.org/wiki/File:Global_Warming_Predictions.png
TECHNOLOGY
Energy mix revolution…
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Has been done before…coal, wood, animals
Source: Ayres and Warr (2007)
TECHNOLOGY
Solar and battery prices
13
Trend decline in prices due to technological improvement
Source: Bloomberg New Energy Finance
TECHNOLOGY
Battery technology
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Inverse relationship between density and price
Source: http://batteryuniversity.com/learn/archive/battery_statistics
TECHNOLOGY
Other technology prices falling too
15
Collapse in data storage -> big data -> AI-> autonomous driving
Source: https://www.computerworld.com/article/3182207/data-storage/cw50-data-storage-goes-from-1m-to-2-cents-per-gigabyte.html
By Grendelkhan [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons
TECHNOLOGY
Disruption from falling data storage prices
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Will the robots destroy all the jobs?
( Nand Flash = SD card, DRAM = computer memory )
Source: https://www.computerworld.com/article/3182207/data-storage/cw50-data-storage-goes-from-1m-to-2-cents-per-gigabyte.html
0
1
100
10,000
1,000,000
100,000,000
10,000,000,000
65 70 75 80 85 90 95 00 05 10 15
Price of storage and memory costs through the years
Disk DRAM
TECHNOLOGY
Disruption is happening quicker?
17
Smartphone 4 years, computer 16 years, phone 43 years
Source: https://ourworldindata.org/technology-adoption
TECHNOLOGY
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“There is a world market for maybe five computers”Thomas Watson, IBM Chairman, 1943
“There’s no chance that the iPhone is going to get any significant
market share”Steve Ballmer, Microsoft CEO, 2007
“The telephone has too many shortcomings to be seriously considered
a means of communication”William Orton, Western Union President, 1876
TECHNOLOGY
Don’t underestimate the potential for
technological change
Demographics – Population Pyramid Scheme
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Running out of workers!
1980 2015 2050
Source: UN WPP 2015
Western Europe Population Pyramids
DEMOGRAPHICS
Population Pyramid Scheme – Rising life expectancy
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• In 1908, life expectancy was
BELOW pension age
• In 1940s, the gap was 7 years
• Today, the gap is 17 years
60
65
70
75
80
85
1910 1930 1950 1970 1990 2010
Average life expectancy of a 20-year old (i.e. survived childhood)
Average
Source: ONS
DEMOGRAPHICS
More retirees than school leavers!
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Net effect = shrinking domestic born workforce
-250,000
-200,000
-150,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000
250,000
80 85 90 95 00 05 10 15 20 25 30
Net change in domestic-born workforce (nb this excludes retiring immigrants!)
Net school leavers less retirees
Source: ONS
DEMOGRAPHICS
UK story the same globally…
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Global labour force slowing
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25
Global labour force growth(adjusted for age and gender productivity)
Countries weighted by size of economy Countries weighted by population
Source: OECD, UN, Macrobond, LGIM estimates
DEMOGRAPHICS
0
5
10
15
20
25
30
35
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Welfare spending Non-welfare spending Taxes
Tax and spendMiddle-aged taxpayers fund children and pensioners
23Source: LGIM, Macrobond, OBR
Tax receipts and public spending by age, £000sDEMOGRAPHICS
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
2015 2020 2025 2030 2035 2040 2045 2050
Public finances under pressureLower taxes and higher health/pension costs to boost deficit
Source: OBR, LGIM estimates.
Cumulative impact on public finances (% of GDP) from ageing
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DEMOGRAPHICS
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 99%
An
nu
alis
ed r
eal i
nco
me
gro
wth
Percentiles of the global income distribution
Global inequality has fallen due to rise of China
25Source: “Global Income Distribution: From the fall of the Berlin Wall to the Great Recession” Lakner and Milanovic,
World Bank Economic Review, September 2015
The global “elite”
EM middle class
DM middle class
But developed market middle class has suffered
POPULISM
Inflation impact of populist shift clearer
than growth impact
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Populism
Protectionism
Weaker trend growth
Fiscal spending
Stronger short-term growth
“An ideology that pits a virtuous and homogeneous people against a set of elites
and dangerous ‘others’ who are together depicted as depriving
(or attempting to deprive) the sovereign people of their rights, values, prosperity,
identity, and voice”
Albertazzi & Duncan (2008), Twenty-First Century Populism
Higher inflation
Source: LGIM
POPULISM
Trade war?
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US often raised tariffs… but 1930s was first time we saw retaliation
POPULISM
Imports from Rest of the World
Imports from China
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Goods
Services
$ 4 trillion
$ 10 trillion
$ 0.5 trillion
$ 2.5 trillion
US consumption US imports
• 10% tariff on all Chinese imports is still only an average tariff of 1.7%
• CPI impact of tariffs is small but noticeable…
• Tariffs so far amount to ¼% of GDP
Trade war?Let’s keep it in context
POPULISM
Source: IMF, BEA, LGIM
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400,000
420,000
440,000
460,000
480,000
500,000
520,000
540,000
560,000
1965 1975 1985 1995 2005 2015 2025 2035 2045
Population
Population projection: zero immigration
Population projection: median estimate
Thousands
150,000
200,000
250,000
300,000
350,000
400,000
450,000
1965 1975 1985 1995 2005 2015 2025 2035 2045
Population
Population projection: zero immigration
Population projection: median estimate
Thousands
Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The
2017 Revision, DVD Edition.
Who needs high immigration?US population outlook EU population outlook
POPULISM
30
of Americans described
immigration as having a
“very or fairly positive”
impact on their country
of Europeans* described
immigration as having a
“very or fairly positive”
impact on their country
Source: “Global Views on Immigration and the Refugee Crisis” Ipsos, Sep 2017. European data are an unweighted average of
Hungary, Italy, Belgium, France, Poland, Germany, Sweden, Spain and the United Kingdom.
Who wants high immigration?
POPULISM
31
POPULISM
Source: BBC
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UK
INFLATION
UK REAL
YIELDS
GLOBALISATION TECHNOLOGY DEMOGRAPHICS POPULISM
So what?
Source: LGIM
Keeping in touch through our blogs
33
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