The Big Picture: Macro-Trends That Will Shape the Next 10 Years
We’ve been in a state of “permacrisis” for the past few years. Political, economic, military and financial turmoils have been adding up in a never-ending stream. It will be no different in 2023.
We must however be wary of missing the forest for the trees when constantly battling short-term issues. Massive macro-economic trends move slowly, but are often more consequential than flashy elections or war reports.
With this in mind, below are the key macro-trends that will impact business leaders and investors alike over the next 10 years, and what bets they need to make to secure their future.
1. Shifts in global value chains
The 2020s will be known as the era of “slowbalisation”. Supply chains are quickly being re-organized due to increasing labor costs (and cost mitigation investments such as robotization), a need for diversification, and evolving geostrategic objectives. Nowhere is this more visible than in the US/China relationship (and Brexit), where tariffs and self-sufficiency are the mots du jour. The high tech and raw material sectors may be the ones impacted first, but these changes will be felt through the entire economy.
This will lead companies to either look into emerging manufacturing nations (India, Vietnam…), or into onshoring / nearshoring / friend-shoring.
Here’s what to bet on to take advantage of shifts in global value chains.
Bet on local competitiveness
Economies with competitive advantage such as cheap manufacturing and pro-trade politics are set to grow as global value chains realign. Smart investors should look at actors in place which will facilitate this growth. They should also avoid infrastructure firms in the countries set be hurt from these changes (ex: Cargo and manufacturing companies in China).
Look into: Banks and Construction companies in “secondary” manufacturing countries (ex: Mexico, Indonesia, India…)
Bet on the creation of dual supply chain models
In order to survive the growing East/West divide, many companies will need to create distinct operating models to maximize market capture while remaining compliant with national policies. There will also be strong demand for insurance and expert knowledge around these topics. Meanwhile, fully globalized companies will need to invest significant amounts into new supply models to reduce risks.
Look into: Global corporate insurance companies
Bet on decreased M&A activities
The geo-strategic context of the 2020s will heavily weigh on M&A activities. Not only will there be increased scrutiny for transnational deals, but also increased interest in national resilience / autonomy. This is especially relevant in the defense and IP-heavy industries. Companies in the semi-conductor and communication sectors are likely to lose out due to low level of trust between actors.
Look into: incumbents, as restrictions will stop new players from acquiring competitive advantage
2. Higher interest rates and inflation
The COVID-19 pandemic, and our collective reaction to it, has created a perfect economic storm. Supply limitations and rising national debt have led to rampant inflation and higher interest rate regimes.
This is creating the basis for a new macroeconomic era in the 2020s. Growth and consumption over the next ten years will look very different from the past decade, as businesses and households acclimate to a new system and governments reduce spending and/or raise taxes. Investors, meanwhile, are likely to favour cash-generating investments over growth investments.
Here’s what to bet on to take advantage of higher interest rates and inflation.
Bet on buying less and renting more
High interest rates will force companies and states to reconsider the value of their assets, be they real estate, credit, equity or large infrastructure. This will lead actors to be more keen on renting or repairing an asset rather than buying it. While this may benefit a new generation of manufacturers, mortgage and durable goods companies will surely suffer because of this shift.
Bet on shifting consumption patterns
Those of us in the middle class are already well aware that inflation is adding pressure to disposable incomes. This will lead to less spending. Meanwhile, many companies are not able to pass their rising costs on to customers for economic or legal reasons. We can expect cost-cutting in unexpected places, and will benefit those with the most pricing power.
Bet on a slowdown of the welfare state
After spending mountains of cash during the COVID crisis, it’s time for governments to re-balance their budgets. This may mean both increasing revenue through taxes, and decreasing costs by cutting what is least necessary. As state investments are reduced, lower income populations will suffer, as will companies relying on public funding (ex: R&D).
Look into: The privatization of the public sector
3. The changing nature of work
Digitization and globalization allowed many jobs to be done remotely. COVID only accelerated and accentuated this trend. Many workers have now left cities, and do not plan on coming back on site. This will no doubt impact city planning for decades to come.
Moreover, a skill was once relevant for nearly 20 years. That number is now down to 5 years. Companies must support ongoing trainings, and must do so often. This requires massive investments. However, workers’ dedication to a particular company is far from being a given today, and employers are struggling with talent retention, even after having spent fortunes on training.
As workforce retention becomes more difficult, and as AI becomes more prevalent, office workers will get a taste of what happened in factories for a generation. White collar automation is coming in the face of strong economic headwinds.
Here’s what to bet on to take advantage of the changing nature of work.
Bet on the reshaping of cities
As work changes, so will cities. The real estate footprint of offices will become more mixed (oh Wework, what could have been). Workers and companies are likely to continue migrating from high-cost cities to more rural locations which are often a) nicer to live in and b) more affordable. This is bad for commercial real estate and premium residential areas in large cities… but good for everyone else.
Bet on hybrid working shifting consumption trends
Hybrid workers spend more time at home and commute less to work. That’s obvious. What’s not obvious, however, is how this will shift consumption patterns from one area of the city (near metros and offices) to another (near the home). The business hospitality and catering industry is struggling, and will continue to, as will the industry of office consumables (hopefully Post-Its are safe).
Bet on reskilling / upskilling
As mentioned above, technical skills today do not have a long life-span. Constant reskilling / upskilling is needed. This is mainly the role of companies, but workers will also increasingly look for ways to teach themselves. Companies that fail to train their workers run a double risk: low employer attractivity over the short term and a loss of competitivity over the long term.
Look into: Skills training
Bet on increasing productivity pressures on workers
Workers are increasingly asked to use the latest technology to do more with less. This used to be a blue-collar problem, but AI is now bringing these topics (and philosophical questions) to air-conditioned offices. As these things often go, this is bad news for professions requiring low level of skills (call centers, low-level coding, CEOs…).
Look into: Leading Artificial Intelligence companies
4. The changing demographics
The make-up of the world’s demographic is evolving. As fertility decreases and life expectancy increases, the working-age population is fast shrinking in developed nations. This will have a sizable impact on state budgets, the willingness to automate jobs and consumer spending patterns.
Governments will need to make do with reduced pensions participation while dealing with increased healthcare costs. This means people will also want to build their own safety nets through investments. This article, in fact, is part of this trend.
Here’s what to bet on to take advantage of changing demographics.
Bet on labor pool shrinkage increasing productivity demands and skill premiums
As seen above, having fewer people of working age increases pressure on workers to do more with less. This is where automation comes in (still mostly in factories, but office workers beware). Demographic pressures also increase the value of certain skills in the labor market. If that skill does not exist locally, immigration / offshoring can, and will, be used.
Bet on increased demand for elderly products, services and healthcare
The increase in life expectancies will ensure the growth of senior populations the world over. This will naturally support a growing demand for elderly products and services. We can also expect an increase in healthcare expenditure. Industries likely to lose out because of this trend are labor-intensive sectors (ex: agriculture) and those relying on expenditures which decline as a population ages (ex: restaurants).
Look into: The nursing home industry
Look into: The MedTech industry
Look into: Cruises & other holidays
Bet on short and long-term fertility dips shrinking demand for childcare
Birth rates have fallen during the COVID pandemic… and will continue to fall. Without the burden of child-raising, many women will be looking to get back to work. This will lead to increase expenditures in women’s work related consumption (e.g., work clothing). An increase in women joining the workforce is likely to decrease wage pressure in industries where women are prevalent: health, teaching and personal care.
Bet on more financialization
With more a more people being confident that they will not have a pension that will allow them to retire in dignity, we will see an explosion of investments into riskier and riskier assets. Wall Steet Bets and meme stocks were only the beginning, and banks will make a killing as armies of retail investors join existing bag holders.
Look into: Wall Street Bets
5. The sustainability and energy transition
Consumer demands are increasingly fueling the creation of sustainable products and services. However, a green transition this could create will be slowed by lower than necessary investments in new energy sources. The war in Ukraine has led to short-term energy decisions which come at the expense of green long-term investments. This, in addition to lower governmental investments in the near future (older population = less taxes), will lead to decades of supply and demand imbalances within the energy sector.
Here’s what to bet on to take advantage of the sustainability and energy transition.
Bet on new energy usages and efficiency measures
Regardless of (diminishing) public investments, it is unlikely we will see a full reversal of current energy trends. As such, the 2020s will continue to see increased demand for green energies and their increased efficiencies. This is particularly true for manufacturing, new buildings and households. Nevertheless, whether the mining and oil & gas sectors shrink as a result is yet to be determined.
Bet on sustainable retail consumption
Sustainability is, and will continue to be, a driving force for consumers in developed countries. While hard times may make some reconsider their choices, many have come to (rightly) believe that an energy transition is necessary to safeguard the future of humanity. This is good news for some industries… and bad news for manufacturers with large environmental footprints (ex: fast fashion, plastic…).
Bet on green(er) public transportation
The world’s increasing urbanization, combined with the realization that pollution kills, is driving the need for cleaner mobility options. This includes Electric Vehicles, of course, but also other solutions such as ride-sharing or emission-free public transportation. This is good news for current EV leaders… and bad news for laggards.
Look into: Battery manufacturers
Bet on the sustainable economy ecosystem
All the changes highlighted above will need to rely on a wide web of stakeholders. Some companies will embody the energy transition, while others will help (consulting, compliance, sustainability analytics, carbon accounting, certification…). These secondary actors will benefit from the development of the market, without having to suffer from being in the limelight.
As the world continues to change and evolve, it is important to stay informed about global trends and how they may affect our daily lives. From technological advancements to shifts in political and economic systems, understanding the current landscape can help us continuously adapt and make more informed decisions. If we can safely and ethically make money along the way, all the better.
Good luck out there.