Are megatrends leading to epoch-defining change?
Change is a constant companion. But sometimes, several trends coincide and combine in a way that significantly accelerates change and ushers in a new era or cycle. Will we be facing such a historic structural upheaval in the economic sphere in the coming decades?
What elements have to coincide in order for ‘normal’ economic change to escalate into epoch-defining transformation? Take, for example, the industrial revolution. It first began in Germany in 1830 as a result of a number of trends and factors that were initially only loosely connected. At the time, innovations (the advent of the railway, advances in medicine/hygiene and agriculture) and the population growth they facilitated coincided with political ‘deregulation’ (liberation of peasants, freedom to practice trades), developments in trade policy (customs union) and the emergence of the banking industry. The rest is history – and it is called a ‘revolution’ for good reason.
These days, it feels a little like we might be on the cusp of a similar major upheaval. And by that, we do not mean the coronavirus crisis, although it is certainly contributing to that feeling. What we are focusing on here is long-term economic change as a result of structural megatrends. In its essence, COVID-19 is a health crisis that has triggered a severe economic crisis. Some of its consequences will persist and become structurally engrained. And the pandemic will also undoubtedly have an impact on pre-existing megatrends such as digitalisation and deglobalisation. But there is little to suggest that COVID-19 might generate an economic megatrend in its own right.
So, what are we talking about? Demographic trends, technological advances (digitalisation, AI, robotics) and changes in our climate are currently all accelerating simultaneously. Climate change is, in turn, prompting large-scale government intervention (e.g. in the energy and automotive sectors). In addition, we are seeing political phenomena (with an economic dimension) such as populism, anti-liberalism and protectionism coming to the fore and it remains to be seen whether these will be transitory or become more established. While all of these individual trends may not be closely related in terms of their origins, they are certainly starting to interact to an ever greater extent. At this point in time, it is hard to predict where this may lead. We may currently have a sense of something happening, but are we actually about to experience change that could fundamentally transform our economic and social structures? Is this cocktail of trends a recipe for epoch-defining economic change? Our latest edition of durchGEDACHT examines this question from multiple angles and always in the context of its implications for asset managers.
Our study paper specifically addresses the following questions:
In which areas are the economy and society currently experiencing significant change?
How quickly are changes related to the megatrends of demographics, digitalisation, deglobalisation and climate change materialising?
How is the coronavirus crisis affecting various trends?
What do the identified changes mean for the capital markets and the investment decisions of Union Investment?