To what kind of world will we recover?
Delve into seven world-shaping megatrends, analyse the data that defines them, and plot their potential impact on individual industries.
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by UBS
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By some measures, the world has never been a more global place.
But through an economic lens, globalisation has regressed in terms of the free movement across borders of goods, capital and labour.
In the 1990s and 2000s, 3.5-4% annual global growth yielded 15-20% earnings growth. But since the Global Financial Crisis, 3-3.5% global growth has yielded just 2-5% earnings growth.
Global trade volumes and real GDP growth - the very long-term view
10
32
9
29
8
26
7
23
6
20
5
17
4
14
3
11
2
8
1
5
0
2
%
%
Export Growth
GDP Growth
World Exports to GDP (rhs)
Early Stages of Industrial Revolution
1st Wave of Globalisation
De-globalisation
2nd Wave of Globalisation
Oil Shocks and High Inflation
3rd Wave of Globalisation
Slowdown
Source: Maddison, IMF, WTO, World Bank, Haver, UBS estimates
The lever that shifted is trade elasticity to GDP. Simply put, it is slowing globalisation – which UBS analysts believe will have the biggest negative impact of all the megatrends.
Protectionism is not the cause of this de-globalisation.
UBS assessed the elasticity of global trade to GDP growth over 200 years, and found that the recent stasis in globalisation is not a special event, and that the true outlier is the 20-25-year period from the late 1980s to just before the Global Financial Crisis.
Number of liberalising and protectionist measures initiated – goods trade
Liberalising
Protectionist
-300
-200
-100
0
100
200
300
400
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
Source: Global Trade Alert, UBS estimates
But protectionism is now adding to the stasis. Protectionist measures are on the rise, affecting the movement of goods, capital, labour and, most recently, services. This protectionism around services increases risks, which are not yet reflected in the markets.
Number of liberalising and protectionist measures initiated - investment, migration, services trade
200
180
160
140
120
100
80
60
40
20
0
Protectionist
Liberalising
2009-2014
2015-2020
Source: Global Trade Alert, UBS estimates
UBS says it is very likely that the process of de-globalisation will accelerate over the coming years as companies move routine tasks back to their domestic markets, shortening value chains.
A UBS Evidence Lab survey found that 85% of corporates in North Asia intend to move some capacity out of China, slowing Foreign Direct Investment (FDI) flows to that country.1
China is also rebalancing away from investment towards consumption and services.2
This is reducing China’s import intensity and hurting markets that sell to key Chinese sectors, such as manufacturing and real estate.3
Sectors in focus
Transport and Logistics may be hit by shorter value chains and a shift to localised production
Governments may take steps to ensure more critical Medical Supplies and Devices are made domestically
Despite some distribution challenges during the pandemic, the Pharmaceuticals supply chain has held up well
Increased use of online grocery and mainstream retailers plus a possible shift from out-of-home to at-home eating bodes well for Food Retail
Sources:
1. EMS 2015, Dachs, Bernhard and Seric, Adnan, 2019, UNIDO, UBS. Note: The survey, conducted in 2013-15, included 2,448 European firms (with at least 20 employees) in Austria, Croatia, Germany, the Netherlands, Serbia, Slovenia, Spain and Switzerland. Only firms engaged in reshoring were considered. Multiple answers were possible.
2. OECD, UBS, World FDI inflows in USD billion and as % of GDP
3. MSCI, Datastream, Haver, Bloomberg, UBS
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