Flags on the roof of the congress centre during preparations for the annual WEF meeting in the Swiss Alps resort of Davos, Switzerland, January 19 2020. Picture: REUTERS/DENIS BALIBOUSE
Flags on the roof of the congress centre during preparations for the annual WEF meeting in the Swiss Alps resort of Davos, Switzerland, January 19 2020. Picture: REUTERS/DENIS BALIBOUSE

Amid the Alpine peaks of the Swiss resort of Davos in the week ahead, politicians, investors and executives will debate whether we are witnessing peaks in drivers of the world economy.

From oil demand, car production and the proportion of young people as a share of the population, to less-measurable themes such as globalisation, inequality and central banking power, there’s an argument each will ebb in the 2020s.

Strategists at the Bank of America are already telling clients to brace for a “ground-breaking ‘peak decade’” that will disrupt business and investing. Ian Bremmer, a delegate at the World Economic Forum’s annual meeting and founder of Eurasia Group, describes 2020  as a “tipping point”.

The theme is captured throughout the Davos programme, which contains multiple panels on “stakeholder capitalism” and tackling inequality. Participants will also discuss the future of globalisation and whether central banks are out of ammunition.

The World Economic Forum logo in Davos, Switzerland, January 19 2020. Picture: REUTERS/DENIS BALIBOUSE
The World Economic Forum logo in Davos, Switzerland, January 19 2020. Picture: REUTERS/DENIS BALIBOUSE

Here are the hot talking points:

Peak globalisation?

The era of people, goods and money flowing unchecked around the world may have passed its high point as governments pursue protectionism and erect more obstacles to migration. Already there are around 77 physical barriers delineating international borders compared with 15 in 1989 after the fall of the Berlin Wall, according to Bank of America.

The World Trade Organization (WTO) calculates the pace of growth in international commerce fell below the rate of economic expansion in 2019 for the fifth time since the financial crisis. Foreign direct investment inflows have been on the decline since 2015, says the UN.

The US-China trade war is at the centre of the shift. But even with the signing of an interim deal, the Peterson Institute for International Economics reckons the average US tariff on imports from China is still 19.3% vs 3.1% at the start of 2018.

Away from Beijing, President Donald Trump is seeking to remodel the WTO and potentially clamp down on European auto exports. The UK  still needs to strike a post-Brexit trade deal with the EU.

Still, the continued development of the digital economy, rising tourism and the mounting reliance of companies on revenues generated outside their home market provide room for confidence that globalisation is evolving rather than ending.

Peak capitalism?

JPMorgan Chase CEO Jamie Dimon and BlackRock founder Laurence Fink, both of whom will be in Davos, are among those who have entered the debate over whether companies should better weigh stakeholders such as customers and employees, a departure from the decades-old shareholder-first mindset.

Behind the shift: the rise of populism, concern that wages aren’t keeping up with assets such as equities and fears over climate change.

The maturing millennial generation are a driving force too. When making investment decisions, 87% of those born between 1981 and 1996 believe environmental, social and governance factors are important, according to Bank of America.

Peak inequality?

The pressure to reduce inequality will become more urgent this decade as the UN’s Sustainable Development Goals approach their 2030 deadline. To date, 193 governments have signed up to 17 goals, 169 targets and 304 indicators on how to end poverty, clean up the environment and share prosperity for all.

There has already been some progress. Abhijit Banerjee and Esther Duflo, last year’s winners of the Nobel prize for economics, estimate the average income of the world’s bottom 50% of earners almost doubled since 1980.

But William Gale of the Brookings Institution notes the 400 richest Americans owned 3.26% of wealth in 2018, up from 0.93% in 1982. The top 1% also paid about a third of their income in tax in both 1979 and 2019, he says. Expect such numbers to be bandied about ahead of the US election in November, with some Democrat candidates promoting higher corporate and wealth taxes.

Peak youth?

For the first time, there are more seniors than children in the world and that trend is set to escalate, according to the UN. The global fertility rate already halved from five children per woman in 1955 and the average life expectancy has increased from 31 in 1900 to 72 today and is tipped to reach 83 by the end of this century.

While another 1-billion people are expected on the planet by 2030, the demographic mix will be starkly different. For starters, the number of those aged 65 or older will outnumber children under the age of five. The growth of the working-age population is also set to slow, straining pensions and health-care resources. In a recent paper, Stanford University professor Charles Jones said there is a “distinct possibility” that global population will decline rather than stabilise in the long run, threatening economic growth.

Peak climate change?

The world faces a sweeping series of climate-related tipping points — from melting ice caps to droughts and dying coral reefs. Nature magazine in November collated the risks, which it described as a climate emergency that will compel political and economic actions on emissions. Twenty-one of the hottest years on record came in the last quarter century.

“We argue that the intervention time left to prevent tipping could already have shrunk towards zero, whereas the reaction time to achieve net zero emissions is 30 years at best,” the article’s authors wrote.

The international effort to rein in fossil fuel pollution took a knock in December after marathon UN talks watered down language on issues they had agreed on in previous years.

Peak oil demand?

Hotter temperatures have put new scrutiny on the world’s energy mix.

This means renewable energy such as solar and wind, plus electric vehicles, are going to soar up the policy agenda at the cost of fossil-fuel-gurgling vehicles. Big Oil executives believe that peak oil demand is likely in the late 2030s.

For example, Saudi Aramco, the world’s largest oil producer and the most profitable company on the planet, said in its initial public offering prospectus that oil demand may peak around 2035, with demand “levelling off”.

Peak cars?

The 1.3-billion vehicles on the roads today are probably the most there will be. Megacities will house around two-thirds of the global population by mid-century, cutting back on the need for expensive cars.

Evolving urban architecture will constrain car usage. The shift is under way in mature markets. Only 26% of US 16-year-olds earned a driver’s licence in 2017 compared with almost half just 36 years ago, according to Sivak Applied Research. Even if overall car sales remain robust, cheaper technology such as robotaxis and developments such as ride-sharing stand to take the shine off their attractiveness.

Peak central banks?

Central banks may have rescued the world from depression in the wake of the financial crisis, but their ability to turn around their economies from here is limited after what Bank of America estimates is more than 700 interest rate cuts and around $12-trillion in quantitative easing since 2009.

Negative interest rates are already being blamed for hurting banks, while demographic shifts, record debt levels, technological disruption and bank deleveraging all sap the potency of monetary policy. That leaves politicians under pressure to loosen fiscal policy the next time trouble hits the world economy.

Bloomberg