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Stéphane Garelli
Professor of World Competitiveness at IMD, and Professor at the University of Lausanne,
Founder of IMD World Competitiveness Center, Switzerland

The world economy is getting better, but the consequences of the recent crisis are still unclear. Although still global, the economy is more desynchronized and increasingly fragmented. After 6 years of crisis, what defines the so-called “new normal”? And what will it mean for countries, companies, business models and people?

In advanced economies, the economy is improving but for how long? Could the “new normal” be one of slow economic growth, interrupted by short bursts of intense activity (instead of rapid growth interrupted by recessions)? Government debt ($36’000bn in the OECD region) will not disappear overnight: 11 governments in Europe spend more than 50% of their GDP. Sub-sovereign debt – that is, liabilities at the regional or local level – exists almost everywhere and presents a serious threat to fiscal discipline and stability. Deflation is a growing concern and induces central banks to support the economy through quantitative easing and low interest rates. Surfing on cheap capital, global companies continue to accumulate vast amount of cash ($4’500bn in the US and Europe).

In emerging economies, diversity prevails. The BRIC (Brazil, Russia, India, China) and MINT (Mexico, Indonesia, Nigeria, Turkey) zones have little in common except size. Countries with large foreign currency reserves continue to diversify their assets by buying foreign companies and financing the globalization of their own local champions. The appearance of new global brands will thus accelerate. Some 1’000 companies from the emerging economies with revenues in excess $1bn can now be considered global. Inflation and a possible exchange rate rise in the dollar or an increase in interest rates could potentially destabilize the weaker ones. Shadow banking – a $67’000bn market – is a time bomb everywhere.

For companies, the reform of taxation - Financial Transaction Tax in Europe, Offshore money, Taxation of global companies, etc. – is high on national and international agendas.
The over-regulation of the national and international system increases the cost of compliance, reduces the speed of doing business, and increases the risk of liabilities. Complexity is everywhere and blurs the relationship with stakeholders and employees. Meanwhile, SMEs still do not get the full benefits of cheap and accessible money, and thus cannot fully play their role in the recovery.

Consumer’s behavior evolves as prosperity increases, from a first buy economy in emerging markets to a replacement economy in advanced markets. An attitude of “I want it” is quickly replacing one of “I need it”. As a consequence, consumer demand becomes more subjective and less intense, especially in periods of economic uncertainty.

Three mega trends shape the world in the background. First, Energy demand will continue to grow (+38% in 2030) but 75% will still be “classical” energy and only 25% renewable. With its energy “renaissance”, the US should produce as much gas as Russia in 2015 and as much oil as Saudi Arabia in 2020. As a consequence, the price of energy for enterprises in the US will be half that of European companies. Secondly, Urbanization will imply that 60% of the world population will live in cities in 2030. 40 mega-regions (agglomeration of cities) already account for 2/3 of world GDP. Finally, Age and Wellness opens new business opportunities. As life expectancy increases by 5 hours per day, people want not only a longer but also a better and healthier life.

World Competitiveness is also a question of mindset. The management of efficiency, of change and of complexity remain top priorities. But to ensure long-term success, a mindset of imagination (why not?), of energy (why not now?) and of commitment (why not me?) will also be decisive.

You will find a summary of some if the ideas highlighted under "Abstract of presentation" as well as examples of supporting slides. Because the economic and business environment is particularly volatile, this material is regularly updated and adapted as circumstances evolve.