The Global Economy:

Navigating a World
of Disruption
Kevin Sneader, Global Managing Partner
June 4, 2019

McKinsey & Company 1

Five disruptions

Shifting Industrial Consumers The Environment Poorer Than Their

Global Power Revolution 4.0 Evolving Parents

McKinsey & Company 2

We always overestimate the change
that will occur in the next two years
and underestimate the change that
will occur in the next ten

– Bill Gates

McKinsey & Company 3 3

Shifting
Global Power

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McKinsey & Company 5
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The world’s economic center of gravity is shifting back to Asia

0
Islamabad,
Pakistan

Source: McKinsey Global Institute analysis McKinsey & Company 7

The world’s economic center of gravity is shifting back to Asia

1500

0
Islamabad,
Pakistan

Source: McKinsey Global Institute analysis McKinsey & Company 8

The world’s economic center of gravity is shifting back to Asia

1940

1500

0
Islamabad,
Pakistan

Source: McKinsey Global Institute analysis McKinsey & Company 9

The world’s economic center of gravity is shifting back to Asia

1950
1940

1500

0
Islamabad,
Pakistan

Source: McKinsey Global Institute analysis McKinsey & Company 10

The world’s economic center of gravity is shifting back to Asia

2000
1950
1940

1500

0
Islamabad,
Pakistan

Source: McKinsey Global Institute analysis McKinsey & Company 11

The world’s economic center of gravity is shifting back to Asia

2000
1950
1940
2010

1500

0
Islamabad,
Pakistan

Source: McKinsey Global Institute analysis McKinsey & Company 12

The world’s economic center of gravity is shifting back to Asia

2000
1950
1940
2010

2025
Nur-Sultan,
Kazakhstan
1500

0
Islamabad,
Pakistan

Source: McKinsey Global Institute analysis McKinsey & Company 13

 The Chinese economy has been slowing since 2016
x.x 2000-2015 CAGR, % x.x 2015-2018 CAGR, %

GDP Investment Export

Real growth, percent Share of GDP, percent Share of GDP, percent

15 100 40
80 30 21.3 19.8
10 60 20
6.6 40 32.4 10
41.6
5 6.9 20 0
2000 05 10 15 2018 2000 05 10 15 2018 2000 05 10 15 17
10 6.7 18 0.7 14 5

FX Reserves Urban Employment Nominal Retail Sales Growth: YoY

USD trillions Millions %
434
6 450 25
400 20
4 3.1 350 404
15
3.3 300 9.0
2 10
250 10.7
0 200 5
2000 05 10 15 2018 2000 05 10 15 2018 2000 05 10 15 2018
3.8 2.4
22 -3 n/a n/a

Source: McKinsey Global Institute analysis; World Bank McKinsey & Company 14
China also faces demographic headwinds

China’s Population,
Million persons

1,500 Population (M) 2.5% By 2020, China

will also have
2.0%
255
1,000
1.5% million
people (17.8%
1.0%
500 Growth rate (%) of the population)
0.5%
above the age
of 60
0 0%
2010 11 12 13 14 15 16 17 18 19 2020

Source: IMF McKinsey & Company 15

China still has significant room for growth
United States Germany Japan China

GDP evolution by country 1960–2017

United States = 100; current $ basis

100

80

60

40

20

0
1960 1970 1980 1990 2000 2010

Source: World Bank, McKinsey Global Institute McKinsey & Company 16

By 2025, one third of China’s population will still live in rural areas

% 67%
80 Urban population
By 2025, China’s
urban population
60 will represent >85%
of China’s GDP

40

33%
20 Rural population

2000 2005 2010 2015 2020 2025

Source: McKinsey Insights China – Macroeconomic model update; UN Population Division; McKinsey Global Institute All City Model, 2009 McKinsey & Company 17
Chinese Fortune 500 companies doubled since 2012

Number of companies in Global Fortune 500 by country1

180

135

90

45

0
2007 08 09 10 11 12 13 14 15 16 17 2018
1 China numbers does not include Taiwan

Source: Bloomberg; Fortune; S&P McKinsey & Company 18

But more than 80 percent of their revenue is still domestic

Share of revenue earned outside home country,

%
44%

19%
17%

2012 2017 2017

Source: Bloomberg; Fortune; S&P McKinsey & Company 19

China is at a crossroads between investment-led and productivity-
driven growth

China’s GDP by 2030

$ trillion A productivity-driven
22.1 approach could
generate
+5.6
16.5 $5.6 trillion
of additional GDP
10.7 and $5.1 trillion
of additional
household income
by 2030, compared
with continuing the
investment-led path
2015 Investment- Productivity-driven
led
Source: McKinsey Global Institute analysis McKinsey & Company 20
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Industrial
Revolution
4.0

McKinsey & Company 23

Four Industrial Revolutions and ...

1st 2nd 3rd 4th

Steam power to Electric power Machines Inter-connected
mechanize production for mass production to automate production technologies

Late 18th century Early 20th century 1970s Today and tomorrow

Source: The Fourth Industrial Revolution (2016) and Shaping the Fourth Industrial Revolution (2018), Klaus Schwab McKinsey & Company 24
 ... Five technologies

Digitization of firms, Automation IoT enhanced by AI and Quantum People: talent

sectors, economies and Robotics blockchain and Computing and culture
and globalization distributed ledgers
~$10 Trillion ~$16 Trillion $3.9+ Trillion $3.5 - $5.8 Trillion Priceless

in value annually in total wages with total potential economic in value annually
through 2025 automatable activities impact by 2025

Source: McKinsey Global Institute, McKinsey Advanced Industries Practice, WEF Digital Transformation of Industries Project (2016) McKinsey & Company 25
Consumers
Evolving

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Four macro trends shaping global consumption

Urbanization Middle Class Millennials Aging

Explosion Taking Over Population
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For the first time, half the world will be in the consuming class

World population
Billions
53%
35% 7.9
24% 6.8

12% 3.7 2010

2025
6% 2.5 1970

1.6 1950

1900

Source: McKinsey Global Institute analysis McKinsey & Company 28

Almost half of global consumption will occur in emerging markets

China and emerging Asia 18% 25%

Other emerging markets 20%

21%

Developed countries 62%

54%

2017 2025
Source: IHS Economics, McKinsey Global Institute analysis McKinsey & Company 29
Millennials will outnumber Boomers this year

Population in the U.S., millions

90

80 Millennials (1981-1996)

70

60 Gen X (1965-1980)
Millennials will
50 surpass Boomers

40 in 2019
30 Boomers (1946-1964)
0
2016 20 25 30 35 40 45 2050

Source: PEW Research Center; Bank of America; Goldman Sachs; US Census McKinsey & Company 30
By 2050 …

The proportion of world’s population over age 65 will double

For the first time in history, there will be more people aged 65 or older than under the age of 14

In Italy, Japan and Spain, one in three people is expected to be 65 or older

The number of people worldwide aged 80 or older will quadruple to 446 million

80% of people aged 65 or older will live in low or middle-income countries

Source: NIH, WHO, UN McKinsey & Company 31

The
Environment

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CO2 emissions have risen exponentially since 1950

Total CO2 emissions from fossil fuel consumption & industry

Gigaton of CO2 emitted per year1

40

30

3% p.a.
20

10

0
1750 1800 1850 1900 1950 2000
1 2016 projected, 2017 estimated

Source: Global Carbon Budget McKinsey & Company 33

Growth in emissions is driven in large part by high-growth
economies
CAGR, % world
Millions of tons of carbon dioxide released per year1 1990-2018 total, 2018
16,000
15,000 Rest of world 1.7% 41%
14,000
13,000
12,000
11,000
10,000 China 5.3% 28%
9,000
8,000
7,000
6,000
5,000 United States 0.2% 15%
4,000
EU -0.9% 9%
3,000
2,000 India 5.3% 7%
1,000
0
1990 95 2000 05 10 15 2018
1 Fossil fuel and cement production emissions by country (territorial, GCB)

Source: Global Carbon Project; UNFCCC (June 2017) and CDIAC; Enterprise-Record, “Why fossil fuel emissions are increasing — again” McKinsey & Company 34
The world faces a dual challenge

Support global Switch to a more

economic growth sustainable path

Source: McKinsey Global Institute analysis McKinsey & Company 35

Poorer Than
Their Parents

McKinsey & Company 36

From 1993 to 2005, almost all households experienced rising
incomes

Rising
incomes 98%

Falling
incomes 2%

Source: McKinsey Global Institute analysis McKinsey & Company 37

From 2005 onwards, 70% of households saw incomes fall

Rising
incomes 30%

Falling
incomes 70%

Source: McKinsey Global Institute analysis McKinsey & Company 38

Picture is the same across most developed countries

% of households with falling incomes, 2005 - 2014

97%
81% 70% 70% 70%
63%
20%

Italy United United Netherlands France Sweden Twenty-five

States Kingdom developed
countries

Source: McKinsey Global Institute analysis McKinsey & Company 39

Five disruptions

Shifting Industrial Consumers The Environment Poorer Than Their

Global Power Revolution 4.0 Evolving Parents

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The pace of change will
never be this slow again

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