In 2011, the world experienced new fragmentations, breaking from some of the key trends seen since the Second World War. Some of those fragmentations – economic, social or political – might be with us for a while; they are not only emanating in part from the impact of the financial crisis, but are also linked to long term developments and trends in technology as well as information and cultural globalisation.
2012 will still see volatility as European challenges, electoral cycles in various parts of the world and geopolitical adjustments in the Middle East unfold. However, the key to performance is the assessment of sustainable growth beyond the financial crisis and a reconnection with long term fundamentals.
In a developed world, juggling the constraints of deleveraging and, in some cases newly found fiscal discipline, companies will need to continuously assess the opportunities for sustainable end demand while also exploring the power of emerging market demand.
Leaving aside the quality of management that companies must demonstrate to be successful, the debate around corporate growth sustainability can be articulated around the elements of demand, resources and debt. With this in mind, key themes need to be considered very carefully. These include demographics, climate change related issues (energy) and the ‘Supercycle’ – the evolving role of the large emerging market economies in the global economy with regard to resources and geopolitics.
Demographic factors have a strong role in evaluating demand sustainability. Powerful shifts in population growth, ageing and urbanisation provide compelling long term opportunities for companies.
The world’s population is set to explode to 9bn by 2050 from 7bn today – driven by emerging markets. As the emerging market middle classes grow in number and wealth, consumer patterns will shift dramatically as purchasing power increases.
Trends emerging from this include increased demand for luxury goods, growing spending on health care and education, and dietary changes.
As well as increasing in number, the world’s population is getting older at an unprecedented rate. The majority of population growth is actually occurring at the upper end of the age distribution due to gains in life expectancy. Fertility is falling rapidly and is well below the replacement rate in much of Europe and Asia, including China.
Europe, for example, has a median age of almost 40, making its population one of world’s oldest. Overall population decline in Europe will begin in the next 10-15 years. Currently, dependency ratios are relatively similar across the region, but will diverge over the next 40 years, ranging from under 38% in the UK to over 62% in Italy.