Global Forces LAEDC ECONOMIC FORECAST Speech | February 21, 2018 - PowerPoint PPT Presentation

Global Forces LAEDC ECONOMIC FORECAST Speech | February 21, 2018 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT Any use of this material without specific permission of McKinsey & Company is Last Modified 2/21/2018 6:58 PM Pacific Standard Time strictly prohibited Printed 2/21/2018 1:18 PM Pacific Standard Time

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Four disruptive forces changing the picture Last Modified 2/21/2018 6:58 PM Pacific Standard Time Printed 2/21/2018 1:18 PM Pacific Standard Time Rise of the rest An aging world Accelerating Greater global technologies interconnections McKinsey & Company 5

The economic centre of gravity is shifting east and south at an unprecedented speed Earth’s economic center of gravity Last Modified 2/21/2018 6:58 PM Pacific Standard Time Printed 2/21/2018 1:18 PM Pacific Standard Time 1 CE SOURCE: Angus Maddison; University of Groningen; McKinsey Global Institute analysis McKinsey & Company 6

The economic center of gravity is shifting east and south at an unprecedented speed Last Modified 2/21/2018 6:58 PM Pacific Standard Time Earth’s economic center of gravity 1990 1980 2000 1970 1960 1950 Printed 2/21/2018 1:18 PM Pacific Standard Time 1940 1913 2010 2025 1820 1500 1 CE SOURCE: Angus Maddison; University of Groningen; McKinsey Global Institute analysis 1000

Nearly 3 billion people will join the consuming class by 2025 Last Modified 2/21/2018 6:58 PM Pacific Standard Time World population, billion Share of population in consuming class 53% Consuming class 36% 7.9 Below consuming class 6.8 23% 4.2 5.3 2.4 Printed 2/21/2018 1:18 PM Pacific Standard Time 23% 1.2 13% 3.7 0.9 7% 2.5 3% <1% 0.3 4.4 1.6 4.0 1.3 3.7 1.0 0.1 2.8 0.1 2.2 0 1.5 1.2 1.0 1820 1870 1900 1950 1970 1990 2010 2025 SOURCE: Homi Kharas; Angus Maddison; McKinsey Global Institute Cityscope 2.0 8

China’s Belt and Road Initiative will span over 65 countries Last Modified 2/21/2018 6:58 PM Pacific Standard Time Silk Road Economic Belt Maritime Silk Road Initiative Moscow 65+ Duisburg Rotterdam countries committed Almaty Venice Urumqi Istanbul Bishkek Samarkand Athens $1.4 Printed 2/21/2018 1:18 PM Pacific Standard Time Dushanbe Xi’an Tehran trillion total investment Kolkata Fuzhou Guangzhou (12x the Marshall Plan) Hanoi $250 Kuala Colombo Lumpur billion in projects Nairobi underway Jakarta McKinsey & Company 9

Last Modified 2/21/2018 6:58 PM Pacific Standard Time 440 Printed 2/21/2018 1:18 PM Pacific Standard Time Number of EM cities on course to generate half of global growth McKinsey & Company 10

By 2025, 7.5 million wealthy Chinese households will account for 44% of the global luxury-goods market Last Modified 2/21/2018 6:58 PM Pacific Standard Time Global personal luxury- goods market evolution, Billion RMB 2,700 Other worldwide consumers 2,170 Chinese consumers 1,679 Printed 2/21/2018 1:18 PM Pacific Standard Time 1,482 1,263 1 trillion 44% RMB 36% 32% 21% 12% SOURCE: “Chinese luxury consumers: More global, more demanding, still spending”, MGI report August 2017 2008 2012 2016 2020E 2025E McKinsey & Company 11

As incomes grow, caloric intake, especially from milk and meat, will rise – AgFood will be a huge opportunity Last Modified 2/21/2018 6:58 PM Pacific Standard Time Worldwide production by 2050 Millions of tons Milk Meat 1,077 455 Printed 2/21/2018 1:18 PM Pacific Standard Time +34% 740 +42% 320 2015 2050 2015 2050 18 SOURCE: Food and Agriculture Organization of the United Nations McKinsey & Company 12

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Fertility rates have been declining globally Children per women (over lifetime) Last Modified 2/21/2018 6:58 PM Pacific Standard Time Brazil 6.5 China 6.0 Germany 5.5 India 5.0 South Africa US 4.5 4.0 Printed 2/21/2018 1:18 PM Pacific Standard Time 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 SOURCE: UN population data; World Bank; McKinsey Global Institute analysis McKinsey & Company 17

At past rates of productivity growth, GDP growth would slow by about 40 percent GDP of G19 and Nigeria Last Modified 2/21/2018 6:58 PM Pacific Standard Time Compound annual growth rate, % 3.6 -40% Productivity 1.8 growth 2.1 Printed 2/21/2018 1:18 PM Pacific Standard Time 1.8 Employment growth 1.7 0.3 Past 50 years Next 50 years at historical productivity growth NOTE: Numbers may not sum due to rounding. SOURCE: The Conference Board Total Economy Database; UN Population Division; McKinsey Global Institute analysis McKinsey & Company 18

The pace of technological change is accelerating – driven by three factors Last Modified 2/21/2018 6:58 PM Pacific Standard Time More data has iPhone 7 is 120x faster than the first been created in the 1 past two years than iPhone released 3 the entire previous just 9 years ago history of the Computing human race power Data (Moore’s Printed 2/21/2018 1:18 PM Pacific Standard Time Law) 2 Connectedness and intelligence Number of connected devices will triple to 20 billion by 2020 SOURCE: Gartner; IBM, Apple McKinsey & Company 19

Technological breakthroughs are speeding up First phone call First website First iPhone Last Modified 2/21/2018 6:58 PM Pacific Standard Time 1876 1991 2007 Mobile 115 years 16 years Internet Hargreaves’ GM’s Unimate Google’s Schaft Jenny 1764 1962 2010 Advanced Printed 2/21/2018 1:18 PM Pacific Standard Time 198 years 48 years robotics Printing press Computer printer 3D printer 1448 1953 1984 3D 505 years 31 years Printing SOURCE: McKinsey Global Institute analysis McKinsey & Company 20

Adoption to new consumer trends happens suddenly Last Modified 2/21/2018 6:58 PM Pacific Standard Time E-commerce adoption Sharing economy adoption Percent of total retail value Number of ehailing trips 12 China 10 China cities Cities in other 8 Printed 2/21/2018 1:18 PM Pacific Standard Time Germany countries U.S. 6 4 2 0 2000 2005 2010 2015 Months since launch SOURCE: Uber; eMarketer McKinsey & Company 21

Technological advancement is driving productivity gains with less labor Last Modified 2/21/2018 6:58 PM Pacific Standard Time Detroit, 1990 Revenues Employees Market cap $250 billion 1.2 million $36 billion Printed 2/21/2018 1:18 PM Pacific Standard Time 1.3x 0.2x 45x Silicon Valley, 2016 $330 billion 188,000 $1,626 billion McKinsey & Company 22

Data is the new major flow Bandwidth Gigabits per second (Gbps) <50 50–100 100–500 500–1,000 1,000–5,000 5,000–20,000 >20,000 Last Modified 2/21/2018 6:58 PM Pacific Standard Time 45x larger 2014 100% = 211 Tbps 2005 1 100% = 4.7 Terabits per second (Tbps) EU EU NA NA Printed 2/21/2018 1:18 PM Pacific Standard Time AS AS ME ME AA OC LA AA OC LA +$2.8T SOURCE: TeleGeography; McKinsey Global Institute analysis McKinsey & Company 23

No global recession in an unlinked world Real GDP growth, PPP adjusted, % Last Modified 2/21/2018 6:58 PM Pacific Standard Time 7 6 5 4 3 Printed 2/21/2018 1:18 PM Pacific Standard Time 2 1 0 -1 -2 1950 60 70 80 90 2000 2010 SOURCE: World Bank; McKinsey Global Institute analysis McKinsey & Company 24

The world’s first truly global recession in a linked world Real GDP growth, PPP adjusted, % Last Modified 2/21/2018 6:58 PM Pacific Standard Time 7 6 5 4 3 Printed 2/21/2018 1:18 PM Pacific Standard Time 2 1 0 -1 -2 1950 60 70 80 90 2000 2010 SOURCE: World Bank; McKinsey Global Institute analysis McKinsey & Company 25

The new economic era will be different in six ways Last Modified 2/21/2018 6:58 PM Pacific Standard Time I Power of new consumer class The great II The resource revolution uncertainty III Printed 2/21/2018 1:18 PM Pacific Standard Time A new financial order IV Labor market dislocation V Rise of new competitors VI Rethinking the social contract McKinsey & Company 26

Heading Last Modified 2/21/2018 6:58 PM Pacific Standard Time Printed 2/21/2018 1:18 PM Pacific Standard Time IV Labor market dislocation McKinsey & Company 27