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6 Key Economic Trends for 2021

Trends in the global economy affect everything.

In fact, it could be argued that almost every other trend is dependent on economic conditions.

In a downturn, promising startups may fail to secure funding. And in times of growth, critical infrastructure can be built out.

Below is a list of the top economic trends to watch in 2021.

1. Digital Transformation is Changing the World Economy

Every facet of the economy is being transformed by digital evolution.

For many businesses, digital transformation means investing in digital technologies that improve operations, create efficiencies, and increase customer value.

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Searches for digital transformation have grown by 330% since 2016.

One survey found that 48% of organizations are worried their revenue will take a hit if they don’t invest in digital transformation over the next 12 months.

To address this, many are spending at a rapid pace. Statista estimates that over the next three years direct investment into digital initiatives will total $6.8 trillion.

These “digitally transformed” enterprises are expected to account for over half of global GDP by 2023. This is equivalent to $53.3 trillion, compared to just $13.5 trillion in 2018.

One of the major beneficiaries of this shift is the cloud services market.

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Search interest in cloud services.

At roughly $371.4 billion in 2020, the cloud services market is already massive. And it’s expected to be close to $1 trillion in the next five years.

Outside of the U.S., developing nations will help fuel the growth of digital infrastructure. In doing this, many will leap past steps that developed countries took to build out digital capabilities.

For instance, Africa expects that 475 million people in the Sub-Saharan region will subscribe to mobile internet services by 2025.

(That’s more than the population of the United States.)

The mobile industry’s contribution to the area’s GDP is expected to be $184 billion, or roughly 10% of total Sub-Saharan Africa’s GDP.

Digitization is also a way to help the most advanced companies continue to grow.

In addition, a study by PWC found that digitization contributed 20% more in economic benefits to develop economies than it did to those that were just starting to digitize.

2. Asia and Emerging Markets Drive Global Growth

In the year 2000, U.S. GDP was $10.25 trillion, and it made up just under a third of the world’s total GDP.

By the end of 2019, U.S. GDP had grown to over $20 trillion, but the U.S.’s share of global GDP fell to under 25%.

One of the reasons for this change is China. The country’s 2019 GDP ($14.34 trillion) made up over 15% of the world’s GDP. This is compared to just 3.6% of world GDP in 2000.

China’s GDP alone is expected to contribute 28% to world GDP growth by 2023.

And many Chinese-based businesses are reaping the benefits of economic growth.

For instance, Huawei is the world’s leading telecom supplier and one of the largest smartphone manufacturers.

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Search interest for Huawei.

Other businesses like Tencent and ByteDance (creator of TikTok) are some of the world’s leading technology companies.

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Searches for ByteDance have increased by 3600% since 2016.

China’s ambitious Belt and Road Initiative (BRI) also seeks to transform world trade by improving infrastructure throughout Asia and Africa.

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China’s Belt and Road Initiative

The World Bank estimates that the BRI could significantly increase trade throughout the world, and maybe even boost global real income by 0.7% to 2.9%.

Emerging market economies, such as the BRIC group (Brazil, Russia, India, and China) are making up a larger chunk of the global economy.

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Google searches for “emerging markets” since 2016.

In 2000, the U.S.’s economy was roughly four times the size of the BRIC economies. But by 2019, the two were essentially the same size.

With many developed economies experienced subdued growth,emerging markets are driving global growth.

In 2009, emerging markets contributed 63% to global GDP growth. In 2018, they accounted for around 74% of global growth. And by 2023, that number is expected to rise to 84%.

Asia overall is growing rapidly. On a purchasing power parity basis (PPP), the Asian countries’ GDP is expected to soon exceed the rest of the world’s combined GDP.

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Asia’s Share of Global GDP on PPP basis.

Obviously, adjusting for PPP makes a difference. But even at 2019 market valuations, the Asian economies contributed 38% to global output.

Countries like India have been a big contributor to that. With the world’s third largest economy, India has experienced remarkable growth over the last 20 years.

The middle classes of India and China are expected to exceed 2.2 billion people by 2030. That’s roughly a quarter of the expected world population by then.

Needless to say, India and China will control much of the world’s spending power over the next decade.

3. Changing Demographics Impact Healthcare Costs

The U.S. population is getting older and living longer.

Obviously, healthcare costs increased in 2020. But before that, annual expenditures were still growing at a steady rate.

The Centers for Medicare & Medicaid Services (CMS) predict that by 2028 healthcare costs will reach $6.2 trillion. This would make annual healthcare expenditures just under 20% of U.S. GDP, compared to about 17.7% in 2018.

And when you look at the demographic data, this makes sense.

The median age of the U.S. population has risen to 38.4 years in 2019 from 30 years in 1980.

By 2035, Statista predicts that there will be more people in the U.S. over the age of 65 than children.

Because of this, Medicare spending is expected to increase at a rate of 7.8% per year over the next three years. This is compared to the 2019 growth rate of 6.7%.

Other countries have been, on average, experiencing higher healthcare costs at well. But none have been at the same level as the U.S.

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U.S. Health spending compared to the rest of the world.

In fact, U.S. healthcare spending vastly exceeds any other country in the world.

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U.S. Healthcare spending per capita compared to other countries.

Outside of specific US states, the federal government is also spending a lot on healthcare.

Healthcare spend was only 5% of the federal budget in 1970. By 2000, it had risen to 20%. And by 2018, the cost had reached 28% of the entire federal budget.

4. Monetary and Fiscal Intervention are on the Rise

Over the last few decades, interest rates have been continuously decreasing.

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10-Year Treasury Rate over Time

And this isn’t just in the U.S. Almost all developed countries have experienced decreasing rates since 1980.

In fact, about 27% of global bonds are now negative yielding. This means that $18 trillion worth of bonds now require the lender to pay interest to the borrower.

The U.S. has, to this point, avoided negative yields. But the Federal Reserve is still taking heavy action.

The growth of M2 (a measure of the total money supply in the U.S.) has grown at a very high rate over the last 40 years.

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Total supply of M2 since 1980.

In Europe, the European Central Bank (ECB) has engaged in quantitative easing and other accommodative monetary policies for the last eight years.

The Bank of Japan also became the largest owner of Japanese stocks in 2020 (though it does technically hold its positions through ETFs).

On the fiscal side of things, public debt as a percentage of GDP has been rising around the world since 2008.

In the U.S., government debt as a percentage of GDP has risen from 63% in 2008 to 107% just before the start of COVID-19.

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Federal Debt as a Percentage of GDP.

U.S. federal debt has now risen to around 127% of GDP, but you can see that there was a trend that began roughly twelve years ago.

And the U.S. isn’t alone. Almost every advanced economy’s government debt as a percentage of GDP rose significantly after 2008. Included in this list is Japan, the UK, France, Spain, Australia, Italy, and Portugal.

5. The Workforce is Changing

One of the largest economic trends of 2020 was the rise of remote work.

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Searches for remote work grew by 137% over the past five years.

What you may not have realized, however, is that this trend was in play long before the past year.

In 2018, 3.2% of the workforce was working from home. And that number had increased by 140% since 2005.

It is also estimated that the number of companies hiring remote workers had already increased by 40% over the last five years.

Interestingly enough, in 2019 a study found that an increase in remote work could add trillions to U.S. GDP.

In the past, many part-time or underemployed individuals desired to work longer hours, but couldn’t because of geographical limitations. In fact, 93% of part-time workers surveyed said they would work longer hours if their work schedule was more flexible.

After 2020, we’ve seen this trend explode. Roughly 18% of the U.S. workforce is now working from home.

It’s almost impossible to predict how this trend will play out after things return to normal. But for now, a Gartner survey found that 80% of business leaders plan to allow their employees to work remotely at least part time.

Other research shows that workers are 30% to 40% more productive when working from home.

The shift from working in offices to working at home has also boosted interest in "the gig economy".

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Searches for “gig economy” have grown by 322% over the last five years.

In the U.S., recent estimates place the number of gig workers at around 57 million Americans. This equates to roughly 35% of the workforce.

2020 numbers are still fuzzy, but the pandemic has probably affected things. Before the year began, there were estimates that over 40% of the U.S.’s workforce would be engaged in gig work.

It’s also estimated that freelancers added about $1.28 trillion to the U.S. economy in 2018. That’s probably why more than 80% of U.S. companies are considering using freelance workers.

In 2019, it was reported that Google had more temp and freelance workers than employees on its staff.

As surprising as it sounds, some research even predicts that the majority of the U.S. workforce will be made up of freelancers by 2027.

6. ESG Initiatives Transform how the Economy Operates

The environmental, social, and governance (ESG) movement may be reshaping the way we conduct business and invest in the future.

These ESG standards are primarily being pushed by investors. BlackRock, the world’s largest asset manager (over $8 trillion AUM), has already announced that most of its funds will be governed by ESG requirements.

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Search interest in ESG Investing grew by 1875% since 2016.

Total sustainable debt issuance was up by 29% in 2020 to $732 billion.

And Morningstar reports that flows into ESG funds were over $51 billion in 2020. That’s more than double 2019’s number and ten times as much as 2018’s.

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Sustainable Fund Flows in 2020.

Deloitte predicts that over half of all institutionally-managed assets will be ESG-focused by 2025.

On the corporate side of things, a collection of the largest tech companies have all made commitments to be carbon neutral by 2030.

And in the automotive space, General Motors just became the first of the large automakers to publicly declare that it will only manufacture electric vehicles by 2035.

In the investment world, some feel that this trend is a dying fad. But with real dedication by some of the largest corporations, the movement seems to be forcing action.

On the governance side, things are changing as well.

The Business Roundtable (the U.S.’s largest association for CEOs) announced in 2019 that it was changing its corporate purpose standards. Instead of focusing on shareholder primacy, the group now advocates for stakeholder capitalism.

Conclusion

That’s all for the top economic trends to watch in 2021.

COVID-19 has definitely changed things on this front. There were a number trends that have been disrupted by it. And there are other trends that have been accelerated by it.

It will be interesting to see how business and governments impact the economy as 2021 rolls on.

Last Updated: 
February 17, 2021
Josh Howarth
Co-founder of Exploding Topics.

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