In 2011, ECR Research identified the eight megatrends that defined the markets. Now, as these trends continue to determine both the global politico-economic and geopolitical climates – and with that, movements in the financial markets – it is important to revisit their significance. These megatrends are:
The emergence of new (great) powers and how the ‘old guard’ reacts.
The shortcomings of the international economic system.
The West’s unsustainable debt burden.
Ageing populations, which take a heavy toll on public finances.
Wars as a result of competition over limited resources, food and water.
New media and technology.
General distrust of the establishment.
Non-state players – such as multinationals, NGOs and popular movements, on the global stage.
Four years on, these eight developments are perhaps even more relevant than ever before since the trends in question are making things increasingly difficult for Western countries. Based on Purchasing Power Parity (PPP), China has overtaken the US as the world’s largest economy. The Eurozone, on the other hand, has not regained the economic strength it demonstrated before the Great Recession. At the global political table, the positions of the US and Europe are being systematically undermined.
China, however, is not excluded from the issues global financial markets face. Failures of the international economic system are yet to be addressed and debts are irresponsibly high in the public and the private sectors. As Martin Wolf, British journalist and influential writer on economics, recently explained, the aggregate debt of Chinese businesses and households has increased by 70% in the period 2007-2014. If indebtedness in the financial sector is added to this figure, the amount increases to 111%; and in combination with public debt, the grand total runs to 124%.
With the exception of Israel, debt as a percentage of GDP has increased in all high income countries. Additionally, the inequality – an inevitable result of the way the system operates – leads to more unrest and dissatisfaction for local populations. French economist, Thomas Piketty, has pushed the topic of inequality high up political agendas but it remains difficult to determine whether the response is purely superficial. In other words, will the politicians really try hard to counter inequality? For now, the answer isn’t clear.
Resources: a balancing act
ECR Research predicts that the debt mountains and weaknesses of the international economy will become glaringly evident in the coming years. As more employees retire, the ratio between workers and non-workers will also become increasingly out of kilter – and the result will be increased spending on social security, healthcare, and pensions that is unsustainable for the majority of countries.
It must be noted that although the world has not seen large-scale wars over resources in recent years, in various regions throughout the developing world, tensions often mount during prolonged periods of drought and over the burden of population increases. Researchers have pointed to drought as a major factor in the violent uprising that began in Syria in 2011. Countries across the globe also have to juggle the fight against climate change which is, in some peoples’ view, not addressed often enough. Currently, the shift towards sustainable energy falls short of projections.
Turning the volume up
A trend that has exceeded all expectations is that of media and communication developments. Whereas the world may have shrunk, the economic opportunities have increased. The result, however, is something of a double-edged sword because, at the same time, such developments have enabled certain regimes with authoritarian tendencies to further suppress their citizens.
In Western countries, the populations are in no mood to keep quiet. They grow increasingly suspicious of those in control and support for populist movements has been accumulating proportionally. As reported in Treasury Today last month, populist parties may be refreshing, but they can also be dangerous. According to journalist and author, Philip Stephens, “it leaves a vacuum of legitimacy, one being filled by the ‘antis’: the anti-elite, the anti-European, the anti-immigrant and the anti-capitalist.” These ‘antis’ are now in power in Greece and the same could potentially happen in other EU states in the course of the year. In fact, ECR Research predicts that the anti-establishment trend will undoubtedly continue as nationalism, populism, and a focus on sovereignty continue to be at the heart of (inter)national politics.
The last megatrend on ECR’s list is the growing importance of non-state actors: ISIS, the rebels in Ukraine, hackers collectives, large multinationals (including banks) are a few examples which bring with them uncertainty and instability. As such, nation states are again coming to the fore as voters force politicians to steer an isolationist course – perhaps, in the idle hope that the dangerous outside world ceases to exist if you close the curtains and hide.