keynote one – the unbalanced economy and the next 30 years

Connecting for a better future

The unbalanced economy What lies ahead for global economic and trading trends?

Ms Anu Madgavkar

Senior Fellow McKinsey Global Institute (MGI)

McKinsey & Company | 3

0

2

4

6

8

10

12

14

2010 2005 2000 1995 1990 1985 1980 1975

Capital became increasingly cheap from the mid 1980s

SOURCE: International Monetary Fund International Financial Statistics; Organisation for Economic Co-operation and

Development; McKinsey Global Institute

1 10-year government bonds where available.

2 Calculated as nominal yield on 10-year bonds in current year minus average realized inflation over next 10 years. We use OECD estimates of inflation in

2009–19 to estimate real interest rates in 2000–09.

Long-term interest rates in developed economies, 1975–2009

Yield to redemption on long-term government bonds1

%, GDP-weighted

Ex-post real values2

Nominal values


240

220

200

180

160

140

120

100

80

0

260

-48%

2000 1990 1980 1970 1960 1950 1940 1930 1920 1910 1900

Average commodity prices fell substantially

World War I

Postwar

depression

Great

Depression

World War II

1970s

oil shock

McKinsey Commodity Price Index (years 1999–2001 = 100)1

1 Based on arithmetic average of 4 commodity sub-indices of food (coffee, cocoa, tea, rice, wheat, maize, sugar, beef, lamb, bananas and palm oil),

agricultural raw materials (cotton, jute, wool, hides, tobacco, rubber and timber), metals (steel, aluminum, tin, copper, silver, lead and zinc), and energy

(oil, coal, and gas) with each sub-index weighted by total world export volumes 1999–2001 at indexed prices over the same time period in real.

SOURCE: Grilli and Yang; Stephan Pfaffenzeller; World Bank; International Monetary Fund; OECD; UN Food and Agriculture

Organization; UN Comtrade; McKinsey Global Institute analysis


The end of the 20th century was big on promise …

“The great moderation”

(1980–2000)

▪ Progressively cheaper

capital driving asset price

growth (and leverage)

▪ Cheaper resources

▪ Cheaper labor -

“demographic dividend”

driving economic growth

▪ Governments privatizing,

cutting taxes, and

promising more

▪ Each generation “richer

than their parents”


“The great uncertainty”

(2010-2030)

Now we are moving into a new economic era


(1980–2000)





▪ Cheaper labor -




cutting taxes, and

promising more



Trend break

Debt crisis

McKinsey & Company | 7 7

550

500

04 02 2000 98 96 94 92 1990

450

400

350

300

250

200

150

100

0

Q2

2011

08 06

SOURCE: Haver Analytics; national central banks; McKinsey Global Institute

1 Includes all loans and fixed-income securities of households, corporations, financial institutions, and government.

2 Defined as an increase of 25 percentage points or more.

3 Or latest available.

The last decade saw a credit boom of immense proportions Total debt, 1990-Q2 2011, Percentage of GDP

Canada

Australia

Germany

United States

South Korea

Italy

France

Spain

United Kingdom

Japan

Change 2000-08

Percentage points

75

39

7

37

177

89

145

68

91

77


0

5

10

15

20

25

30

35

2008 2006 2004 2002 2000 1998 1996 1994 1992 1990

Germany

France

Spain

Italy

Ireland

Portugal

Greece

2010

Yields of 10-year government bonds in the Eurozone converged

SOURCE: Bloomberg; Eurostat

Introduction

of the Euro

Percent

Lehman

bankruptcy

2011



(2010-2030)

Urbanization is shifting the world’s economic centre of gravity


(1980–2000)





▪ Cheaper labor -




cutting taxes, and

promising more



Trend break

Debt crisis

Urbanization


North

American

cities

20%

2000 Non-urban GDP 30%

Other

cities 9%

European

cities 17%

BRICS

cities 15%

OECD

Asia-Pacific

cities

9%

SOURCE: McKinsey Global Institute analysis using data from Angus Maddison, NASA, and MGI Cityscope

NOTE: Artistic impression; not to be used for navigation.


1 AD

China 25%

Europe 21%

India 32%

Rest of

Asia 11%

Other1 11%

SOURCE: McKinsey Global Institute analysis using data from Angus Maddison, NASA, and MGI Cityscope

1 Including North America.


The action was in Asia


1500 SOURCE: McKinsey Global Institute analysis using data from Angus Maddison, NASA, and MGI Cityscope

1 Including North America.


*Including North America

China 25%

Europe 21%

India 25%

Rest of

Asia 15%

Other* 14%


2x richer


North

American

cities

20%

Non-urban GDP 30%

Other

cities 13%

European

cities 17%

OECD

Asia-Pacific

cities

9%

China

and

India (total)

11%

2000 SOURCE: McKinsey Global Institute analysis using data from Angus Maddison, NASA, and MGI Cityscope



0 10 20 30 40 50 60 70 80 90

Per capita GDP has risen in tandem with increases in the urbanization rate

SOURCE: Population Division of the United Nations; Angus Maddison via Timetrics; Global Insight; Census reports of

England and Wales; Honda in Steckel & Floud, 1997; Bairoch, 1975

1 Definition of urbanization varies by country; pre-1950 figures for the United Kingdom are estimated.

2 Historical per capita GDP series expressed in 1990 Geary-Khamis dollars, which reflect PPP.

Per capita GDP and urbanization1

1820

United States

2005

1891

Japan

2005

1920

China

2005

1950

1950

South Korea

2005

1930

Brazil

2005 1950

1860

United Kingdom

2005

1950

India

2005

Italy

2005

Germany

2005 30,000

10,000

3,000

1,000

300

Per capita GDP

1990 PPP $ (log scale)2

Urban population, %

1939


3x richer


2025

North

American

cities

14%

Other

cities 17%

European

cities 13%

Chinese

and Indian

cities

25%

OECD

Asia-Pacific

cities

6%

Other GDP 25% SOURCE: McKinsey Global Institute analysis using data from Angus Maddison, NASA, and MGI Cityscope



In developing economies, incomes are rising faster, and at a greater scale, than at any previous point in history

SOURCE: Angus Maddison; University of Groningen; Resource Revolution: Meeting the world‟s energy, materials, food, and

water needs, McKinsey Global Institute, 2011.

1 Time to increase per capita GDP in purchasing power parity (PPP) terms from $1,300 to $2,600.

9

840

1,023

27

48

28

10

Country

Population at start

of growth period

Million

154

53

65

33

1700 1800 1900 2000

India 16

China 12

South Korea 10

Japan

Germany

United States

United Kingdom

Years to double per capita GDP1



(2010-2030)

Aging is shifting the world’s demographic centre of gravity


(1980–2000)

▪ “Demographic dividend”


in OECD




▪ Cheaper resources and

labor


cutting taxes, and

promising more



Trend break

Debt crisis

Urbanization

Aging


1 out of 4 advanced economy workers over 55 years

in 2030


980 million global retirees by 2030


0.5% p.a. Shrinkage in labor forces of some aging

economies


Aging in advanced economies will slow GDP per capita growth, unless we see a large increase in productivity

SOURCE: United Nations Population Division

EU-15

United

States

Japan

China

Percentage points

-0.4-0.3

0.10

-0.1

2020–30 2010–20 2000–10 1990–2000 1980–90

-0.3-0.7-0.6

-0.2

0.3

-0.3-0.3

0.60.2

1.0

-0.5-0.3

-0.1

00.4

Contribution of share of working-age population growth to yearly GDP per capita growth


3 out of 5 net new workers from India, South Asia and Africa in 2010-30


Net new additions to labor force

%; million workers

SOURCE: United Nations population division (2010 revision); ILO; Global Insight; Oxford Economics; Economist;

local statistics for China and India; McKinsey Global Institute analysis

China’s contribution will drop, while India and “Young Developing” economies will lead labor force growth through 2030

1 Includes Young Advanced, Aging Advanced and Southern Europe clusters.

NOTE: Numbers may not sum due to rounding.

China and India

contributed more than

a third of global labor

force growth

“Young Developing”

economies and India

will contribute almost

60% of global labor

force; ASEAN

countries will

contribute 10%

30

20

100%

Russia

& CEE

Young

Developing India China

Young

Middle-Income

Advanced

economies1

2010–30E 615 -2 28 13 26 5

1990–2010 706 -1 19 18 33 11


Net labor force additions with college education

%; million workers

Education is rising rapidly in Asia - China and India will contribute more than half of the world’s supply of new college educated workers

SOURCE: United Nations Population Division (2010 revision); ILO; IIASA; local statistics for China and India; McKinsey Global Institute analysis

108Russia & CEE

Young Developing

India3

China2

Young

Middle-Income

Advanced

economies1

1990–2010

197

4

12

26

23

26

2010–30E

325

2

27

30

18

14 Share of advanced

economies is likely to decline

China and India together are

likely to contribute 57 percent of

the growth in workers with

some college education

1 Includes Young Advanced, Aging Advanced and Southern Europe clusters

2 In China, currently ~60% of students completing secondary school enrol for tertiary education, assuming it to maintain this trend; In India, the ratio is 50%

today, which is expected to increase to 65% by 2030

3 Drop out rates are assumed to remain constant for China, for India it is expected to decline from 47% to 40% by 2030

Note: Numbers may not sum due to rounding

ASEAN to contribute ~8%

or 27 mn workers with

college education



(2010-2030)

Disruptive technologies are collapsing time scales and distances at an unprecedented rate


(1980–2000)



in OECD





labor


cutting taxes, and

promising more



Trend break

Debt crisis

Urbanization

Aging

Disruptive

technologies


More than one third of the world’s current Internet users are in Asia (and ASEAN account for 7% of global user base)

278

298

265

229

173

9

LatAm

MENA

Africa

2015 forecast

2,662

1,346

509

147 97

2010

1,869

869

418

Asia

55

2005

976

362

76 EU

NA

71 28

278

1 Includes Algeria, Argentina, Brazil, Chile, China, Colombia, Czech Republic, Hungary, India, Indonesia, Kazakhstan, Malaysia, Mexico, Nigeria, Pakistan,

Poland, Romania, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, Ukraine, Vietnam. Data unavailable for Morocco from this source.

SOURCE: Economist Intelligence Unit (EIU) World Data; International Telecommunications Union (ITU, Business Monitor

International (BMI), McKinsey analysis

CAGR %

2005–10 2010–15

Aspiring countries1 33 52 61

5 6 8

Share of global

Internet users from…

%

ASEAN

45

19

19

8

4

22

12

9

9

4

1

14

Estimated Internet users

Million users

Internet users in

ASEAN countries set to

grow at 14% p.a. in

2010-15


Mobile subscribers per 100 people

Mobile adoption in emerging economies is set to grow rapidly – ASEAN will almost match Europe by 2015

31

24

9

17

27

7

29

0

20

40

60

80

100

120

140

‟15E ‟14E ‟13E 12E ‟11 ‟10 ‟09 ‟08 ‟07 ‟06 ‟05

SOURCE: International Telecommunications Union (ITU, Business Monitor International (BMI), McKinsey analysis

ASEAN

NA

MENA

Lat Am

EU

Asia

Africa

CAGR %

2005–10 2010–15

9

8

2

6

5

2

7


Social media has grown faster than any other media technology today

SOURCE: Various press reports

Time to reach 50 million users 50 million users

Radio

TV

iPod

Internet

Facebook

Twitter

38 years

13 years

4 years

3 years

1 year

9 months

ILLUSTRATIVE


The great

uncertainty



(2010–30)

The next decade or more looks very different


(1980–2000)

▪ Emerging markets will

drive global growth and

increases in wealth



in OECD





labor


cutting taxes, and

promising more



Trend break

Debt crisis

Urbanization

Aging

Disruptive

technologies


World consumption World population

2.22.8

4.04.4

3.7

0.9

1.2

2.4 4.2

Below

consuming

class1

Consuming

class1

20252

7.9

2010

6.8

1990

5.2

1970

3.7

1950

2.5

0.3

$ Trillions

6

5

2010

38

9

9 Asia

Western Europe

US & Canada

Sub Saharan Africa

Middle East &

North Africa

Latin America

Eastern Europe

20253

64

22

12

17

1 2

12

1 1 3

2

By 2025, the consuming class will swell to 4.2 billion people. Consumption in Asia will account for $22 trillion – nearly one third of the global total

40

Billions


GDP growth, 2010–253 GDP, 2010

Nearly half of global growth by 2025 will be in “middleweight” cities in emerging markets

1 Megacities are defined as metropolitan areas with ten million or more inhabitants. Middleweights are cities with populations of between 150,000 and ten

million inhabitants.

2 Includes all 2,600+ cities from McKinsey Global Institute Cityscope database.

3 Real exchange rate (RER) for 2010 is the market exchange rate. RER for 2025 was predicted from differences in the per capita GDP growth rates of

countries relative to the US.

Note: Numbers may not sum due to rounding

SOURCE: McKinsey Global Institute Cityscope 2.0

13

30

10 9

11

26

13

49

38

Emerging market

megacities

Emerging market

middleweight cities

Emerging market small

cities and rural areas

Developed economies

12

12

4

3

5 64

Large

Midsized

Small Large

Midsized

Small 12

19

68

100% = $62.7 trillion USD RER 100% = $50.2 trillion USD RER

Contribution to global GDP growth

%


Asia’s estimated sector size , 2025

Meeting rising consumer demand requires cities to invest on urban infrastructure

1 TEU stands for twenty-foot equivalent unit, used to describe the capacity of container ships.

2 Building floor space growth includes floor space replacement.

SOURCE: McKinsey Global Institute Cityscope 2.0

%

35 4052

7089

Growth, 2010–25

4

11

214

30

144

48

46

60

574

65

2010 total

100% =

7.3 6.3 2.4 4.5 0.8

Container

volume

Million

TEU1

GDP at RER

$ trillion

Building floor

space

Thousand

sq. km.2

Municipal

water

demand

Billion cubic

meters

Population

Billion

people

CAGR, 2010–25

%



(2010–30)



(1980–2000)



increases in wealth

▪ More expensive capital



in OECD





labor


cutting taxes, and

promising more



Trend break

Debt crisis

Urbanization

Aging

Disruptive

technologies


SOURCE: Economist Intelligence Unit; Global Insight; McKinsey Global Economic Growth Database; Oxford Economics; World

Development Indicators of the World Bank; MGI Capital Supply & Demand Model; McKinsey Global Institute


Total financial assets, 2010–20F

By 2020, emerging markets’ share of financial assets is projected to double

SOURCE: McKinsey Global Institute

19

14

9

9

9

4

United States

Western Europe

Japan

Other developed

China

Other emerging

2020F

24

22

17

19

2010

198.1

29

27

10

11

2000

113.1

35

34

5 3

391.5

Emerging

markets’ financial

assets

$ trillion

1 Measured in 2010 exchange rates.

2 Rapid growth in emerging markets but low growth through 2015 in mature economies.

3 Emerging markets‟ currencies appreciate vis-à-vis the US dollar.

8 41 141

%; $ trillion


Asset allocation by investor, 2010

%; $ trillion

In emerging markets, savers put their money primarily into deposits


Compound

annual

growth rate,

2000–10 (%)

1839

65 5481 77

Other

Emerging

Asian

house-

holds

1.8

10

13

Chinese

house-

holds

6.5

14 5

Latin

American

house-

holds

3.5

14

24

8

MENA

house-

holds

2.7

Equities

Fixed

income

Cash and

deposits

14

18

2

US house-

holds and

pensions

42.0

5

23

34

28.3

Western

Europe

house-

holds and

pensions

5

30

47

4 23 16 16 14 3

Traditional investors Emerging investors


Incremental demand for equities by domestic investors vs. increase in corporate equity

needs, 2010–20F

$ trillion; 2010 exchange rates

1 France, Germany, Italy, Spain, and the United Kingdom.

2 Australia, Canada, Japan, and South Korea.

3 Brazil, India, Indonesia, Mexico, Russia, South Africa, and Turkey.


37.4

25.1

-12.3

Increase in

corporate

equity needs

Incremental

demand for

equities

2.8

4.7

3.5

4.3

9.8

10.5

7.9

3.9

5.9

9.2

Other emerging3

China

Other developed2

Western Europe1

United States

Increase in corporate

equity needs

Incremental demand

for equities Lower investor demand for equities could fall short of corporate needs by US$12.3 trillion



(2010–30)



(1980–2000)



increases in wealth


▪ More expensive and

volatile resource prices



in OECD





labor


cutting taxes, and

promising more



Trend break

Debt crisis

Urbanization

Aging

Disruptive

technologies


McKinsey Global Institute Commodity Price Index (years 1999–2001 = 100)1

240

220

200

180

160

140

120

100

80

0

20112 2000 1990 1980 1970 1960 1950 1940

260

1930 1920 1910 1900

Commodity prices have increased sharply since 2000, erasing all the declines of the 20th century. . .

World War I

Postwar

depression

Great

Depression

World War II

1970s

oil shock

1 See Resource Revolution: Meeting the world‟s energy, materials, food, and water needs for details on the McKinsey Global Institute Commodity Price

Index

2 2011 prices are based on the average of the first eight months

SOURCE: Grilli and Yang; Stephan Pfaffenzeller; World Bank; International Monetary Fund; OECD; UN Food and Agriculture

Organization; UN Comtrade; McKinsey Global Institute analysis


These resource trends pose several risks to global growth and welfare

IMF estimates that a 10 percent increase in the price of crude

reduces global GDP by 0.2%-0.3% in one year

World Bank estimates that recent food price increases drove 44

million people into poverty

Just four countries – Iran, Iraq, Saudi Arabia, and Venezuela –

hold almost 50 percent of known oil reserves

A recent study by the Economics of Climate Adaptation Working

Group suggests that some regions are at risk of losing up to 12 percent of their annual GDP by 2030 as a result of existing climate patterns



(2010–30)



(1980–2000)



increases in wealth




▪ Growing labor market

mismatches and inequality



in OECD





labor


cutting taxes, and

promising more



Trend break

Debt crisis

Urbanization

Aging

Disruptive

technologies


75 million young people are unemployed worldwide in 2011, comprising 40% of global unemployment


50% youth unemployment in Spain, 20-25% in MENA

Jobless graduates demand jobs in Cairo, Egypt and denounce government's inability to provide employment opportunities to the country's youth. PHOTO - Hussein Malla/AP


In China 23

In

advanced

economies2

16–

18

Total

shortage

38–

41

SOURCE: McKinsey Global Institute analysis

1 Low-skill defined in advanced economies as no post-secondary education; in developing, low skill is primary education or less.

2 25 countries from the analyzed set of 70 countries, that have GDP per capita greater than US$ 20,000 at 2005 purchasing power parity (PPP) levels in

2010.

3 11 countries from the analyzed set of 70 countries, from South Asia and sub-Saharan Africa, with GDP per capita less than $3,000 at 2005 PPP levels in

2010.

13

10

16

Gap between demand and supply of workers by educational attainment, 2020E

Million workers

In Young

Developing

economies3

31

In

India 13

Total

shortage 45 15

10

19

In India and

Young

Developing

economies

58

In

advanced

economies

32–

35

Total

surplus

89–

94 10

11

10

% of supply of skill cohort

% of demand for skill cohort

High-skill workers Medium-skill workers Low-skill workers1

The world is likely to have too few high-skill workers and not enough jobs for low-skill workers

Shortages Surpluses


2 times faster than those of high school graduates in the US from 1963

to 2008

Wages of college graduates grew


2 to 3 times those of high-skill workers across advanced economies

Unemployment rates of low-skill workers were

Job seekers check for employment opportunities. The majority of America's unemployed have been out of work so long they no longer qualify for unemployment benefits. (AP File Photo)



(2010–30)



(1980–2000)



increases in wealth






▪ More government

intervention, fiscal

austerity, and debt crises



in OECD





labor


cutting taxes, and

promising more



Trend break

Debt crisis

Urbanization

Aging

Disruptive

technologies


63

28

6077

4459

45

107120

130

87

118

7693

11491

112123

158

246

>90%

“Danger

Zone”

Spain Ireland Germany United

Kingdom

Portugal France United

States

Italy Greece Japan

SOURCE: International Monetary Fund; McKinsey Global Institute

% of GDP

Non-resident

holding of

general

government

debt 2011

% of total debt

6.6 59.0 27.3 59.1 42.6 43.7 58.4 28.7 50.6 51.6

2014E

2000E By 2014, only Germany will be below the “danger line”

Gross government debt, 2000E, 2014E


1 Japan‟s target for fiscal adjustment is set at 80 percent of GDP

NOTE: Countries are assumed to undergo a gradual transition in their primary balance over 2011–20 and maintain a constant primary balance

after 2020.

SOURCE: International Monetary Fund; McKinsey Global Institute

% of GDP

-1.4

0.3

3.8

3.9

4.0

4.4

4.4

5.0

5.3

7.3

7.5

7.9

10.7

10.9

18.2

Italy

Belgium

France

Netherlands

Greece

United Kingdom

Spain

Ireland

United States

Japan

Canada

Required adjustment

for G20 countries

Switzerland

Germany

Portugal

Australia

Restoring government debt to 60 percent of GDP by 2030 will require painful fiscal adjustment in many countries

Fiscal tightening required 2011–20 to meet gross government debt target of 60 percent of GDP by 2030



(2010–30)



(1980–2000)



increases in wealth






▪ More government

intervention, fiscal

austerity, and debt crises

▪ Some people will be poorer

than their parents



in OECD





labor


cutting taxes, and

promising more



Trend break

Debt crisis

Urbanization

Aging

Disruptive

technologies


0 5 10 15 20 25 30 35 40

2000

200

180

160

140

120

100

Years from birth

260

240

1990

1980

1970

1960

220

SOURCE: US Bureau of Economic Analysis; US Census Bureau; Moody‟s Economy.com; McKinsey analysis

2.54x

2.04x

1.96x

1.78x

1 GDP data for 2010–15 based on McKinsey and Moody‟s consensus projections; 1.7% productivity growth assumed thereafter in line with historical rate;

share of working-age population will decline with UN projections (66% in 2009; 60% in 2030).

1.63x

Indexed to 100

Without a productivity boost, younger generations will see less improvement in their standard of living

US Improvement in per capita GDP by year of birth1

Forecast Birth

year

40-year growth in

per capita GDP

Multiplier


Are you ready

for the future?

McKinsey & Company | 64 SOURCE: Global Insight; McKinsey analysis

USD billions, 2005 currency, percent

2.7

9.5

6.1

5.1

6.3

3.2

2.62

5.73

2.9

2.6

5.5

4.1

3.8

4.0

3.5

2.6

2.6

2.6

xx GDP growth CAGR4

in the interim period

1 1993 - 626 Bn USD (1980 data not available) 2 1991-2010 growth

3 1993-2010 growth 4 CAGR is compound annual growth rate

Mexico N/A

Russia 1 N/A

S. Korea 173

India 205

ASEAN 259

China and HK 268

Gulf Cooperation

Council 341

Oceania 379

Brazil 513

Africa 520

Japan 2,410

EU 5,980

US and Canada 6,407

GCC 794

Russia 905

Mexico 927

Oceania 972

S. Korea 1,015

Brazil 1,096

ASEAN 1,168

India 1,228

Africa 1,256

China and HK 4,047

Japan 4,581

EU 14,317

US and Canada 14,451

1980 Real GDP 2050 Real GDP

Russia 2,560

Oceania 2,715

S. Korea 2,853

GCC 3,132

Mexico 4,416

Brazil 4,846

Japan 5,598

Africa 5,707

ASEAN 5,892

India 10,619

EU 28,569

China and HK 39,428

US and Canada 40,097

5

9

7

2010 Real GDP

3.02

2.2

3.0

2.6

5.9

1.7

3.9

0.5

CAGR

1980-09

CAGR

2010-50

ASEAN on trajectory to be the 5th largest region by 2050

McKinsey & Company | 65 SOURCE: Global Insight; EIU World data

-1

0

1

2

3

4

5

6

7

8

9

10

11

0 10 20 30 40 50 60 70 80 90 100

Productivity, 2010 Real GDP per worker, thousands

ASEAN

India

China

Turkey

Mexico

Russia

Brazil Japan

United States

EU-12

Productivity growth

Percent, 2000-2010 Size represents GDP

Africa

Indonesia

Malaysia

Thailand

Philippines

Vietnam

Singapore

Country

66.7

3.4

15.1

5.5

3.4

1.5

3.0

3.6

2.1

2.5

1.1

5.0

Productivity,

2010

Real GDP per

worker, USD

„000

Growth Percent, 2000-10

USD

ASEAN

Total1 4.6 2.9

1 Only for top 6 ASEAN countries, accurate projections unavailable for other 4 countries

ASEAN 6 has strong labour productivity potential


Top 5 sectors will generate the bulk of incremental economic growth in ASEAN

1 Inclyudes Energy/Utilities, Public services

SOURCE: WIS (Global Insight); McKinsey analysis

194

67

70

102

122

106

155

308

Total 1,124

Others1

Financial Intermediation

Mining

Transport, Storage & Comm

Real Estate and Construction

Agriculture

Wholesale and Retail Trade

Manufacturing

Top 5 growth sectors

contribute ~70% of total

GDP

5.1

5.2

3.2

5.3

6.1

3.1

5.6

4.7

4.9

Sectors

Value added

20103, USD billions

Growth CAGR

2010-20, Percent


Vietnam

Philippines

Thailand

Kuala

Lumpur

Malaysia

Vietnam Cambodia

Thailand

Myanmar

Bangladesh

Laos

Jakarta

Ho Chi

Minh City

Manila

Philippines

Hanoi

Bangkok

Singapore

Sumatra

Top 7 ASEAN cities represent one third of GDP in 2025

City GDP at RER1, 2025

USD billions

XX Percent of country GDP 2025

represented by key city(s)

Key cities

Malaysia 12

Ipoh 23

Johor

Bahru 33

George

Town 41

Kuala

Lumpur 56

Indonesia 12

Pekan

Baru 39

Bekasi 43

Surabaya 64

Jakarta 218

34

Can Tho 10

Hanoi 27

HCM City

71

35

Davao 22

Cebu 29

Manila 157

43

Nakhon

Ratcha-

sima

16

Samut Prakan

29

Bang- kok

300

Singapore 100

Singapore 413

XX City population, millions,

2025

2.2

1.6

1.2

12.8

3.6

3.2

1.5

5.8

1.6

9.4

3.4

3.7

17.1

1.8

4.7

9.7

1 Predicted real exchange rates.

2 Small cities and rural areas. Small cities are those with less than 200,000 inhabitants in 2010.

SOURCE: McKinsey Global Institute Cityscope database 2.1

GDP 2025

USD billions Share

1,283

1,351

1,606

4,239

30%

32%

38%

Top 7 cities

Other large cities

S&R2

Total

2.1

>5 MM

1-5 MM

0.5-1 MM

0.2-0.5 MM

Total

5

16

37

85

143

# cities

0.9


Business portfolio How will business units perform in

a world of higher cost capital and resources? What is their need

for cash and exposure to liquidity risks?

Operations Higher cost of capital will require higher

operating returns to generate same value-added. Return on

invested capital will become increasingly important

Market position What do you see as the major

uncertainties for demand/prices going forward? Are these

currently factored into industry decision making? Are you in

the right geographies?

Talent management Are you prepared for more intense

global competition for high-skill workers? How will your global

footprint and talent management strategies reflect this?

Competitive landscape How well are you prepared for

the uncertain world compared to your competitors? What new

opportunities could emerge in a more volatile environment?

Questions to consider…


What this means for leaders in ASEAN

Time to be BOLD

Manage RISK

Build LEADERS of the future

INNOVATE to execute faster, cheaper

Partner with GOVERNMENTS and other

stakeholders

Connecting for a better future

keynote one – the unbalanced economy and the next 30 years

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