The biggest challenges to the post-pandemic global economy
As the world economy prepares to gradually emerge from the coronavirus crisis, there will soon come a time where all must come together to deal with the more profound societal challenges that are to follow.
The three major goals to be kept in mind for the future, according to a recent McKinsey report, are growth, sustainability and inclusion.
Challenges around growth, inclusiveness and sustainability
But that’s where the key challenge lies: how do we set forth on a trajectory of healthy growth whilst simultaneously guaranteeing sustainability and inclusion?
While this has no direct answer, it must start, first and foremost, with changemakers in governments, businesses and the society as a whole not viewing the three as mutually exclusive trade-offs. It is crucial to recognise, of course, that these are all major challenges in themselves and will require concerted effort to combat simultaneously:
- Arresting slowing growth: GDP growth rates across the world took a major hit through the coronavirus pandemic, with some of the developed G-7 economies even recording sub-1% growth – the first time since the financial crisis of 2008. Growth in most emerging economies too (barring exceptions such as China and India) plummeted as well, recording the lowest levels since the early 200s.
The challenge is to unlock an era of higher global growth (supported by higher productivity) of an additional 1-1.5% annually with the same urgency of action noted through the pandemic.
- The poverty endemic: Poverty is still one of the foremost challenges for the world to tackle, with the pandemic pushing an additional 150 million people into poverty according to World Bank estimates.
- Stress needs to be placed not only on creating adequate jobs with appropriate floor wages, but also in establishing a robust social contract ensuring access to affordable healthcare, energy and housing starting from the bottom quintiles of the poverty spectrum.
The challenge here will be setting up adequate mechanisms to allow the poorest access to affordable water, education, energy, nutrition and financial capital.
- An eye needs to be kept on rising challenges to inequality, such as pandemic-led technology changes changing skill requirements in the evolving workplaces. McKinsey estimates “more than 100 million people will need to make occupational transitions by 2030 in a set of eight advanced and emerging economies.”
The challenge here will be to tackle not only the costs of reskilling and re-employing over the 100 million people set to stagnate in shrinking occupations as a result of technological changes, but also the many millions likely to be displaced by energy transitions.
- Sustainable investment for the future: The International Energy Agency estimates that annual investments of almost $5 trillion are needed by 2030, and $4.5 trillion annually by 2050 to achieve net-zero emissions. This bill is approximately about half of the total global corporate profits of 2019 – and about 1.5 times the annual increase in public debt for the last 15 years.
Additional financing will be needed for further investments in decarbonisation projects in transportation, agriculture and other sectors as well. Concerted technological innovation and portfolio choices may reduce decarbonisation and energy transition costs by about 20% annually.
A recent report from Reuters recently found that ESG funds now account for about 10% of worldwide fund assets. Read more on ESG assets next week.