Global trade has reached its peak and globalisation is giving way to localisation, which is one of the most “profound changes” currently facing the global economy, says Paul Donovan, global chief economist at UBS Wealth.
Accounting for about a quarter of the world’s GDP, global trade is at a record high. “This is as good as it gets. What we are now starting to see is localisation returning to the manufacturing sector,” Donovan said on Tuesday, speaking at a Sasfin Wealth event.
Advances in robotics and artificial intelligence, collectively referred to as the fourth industrial revolution, mean that factories are mechanising, and are placed closer to companies’ consumer markets.
Swedish retailer H&M is using robotics, manufacturing most of its clothing in Europe, not Asia, enabling it to respond to consumer demand more effectively, Donovan said.
This allows the fast-fashion front-runner to quickly respond to consumer demand and even unseasonal weather.
“The fourth industrial revolution will dramatically alter investment, economics and society.”
At SA’s recent inaugural Singularity University event, disruption innovation expert David Roberts said that 40% of the S&P 500 companies would disappear in the next 10 years as exponential technologies disrupted a host of industries. The average lifespan of an S&P 500 company had decreased from 67 years to 15 years, he said.
While only about 9% of jobs would disappear altogether, automation and digitisation would affect about 40% of jobs, said Donovan. This would require people and companies to adapt to new ways of doing things.
“If your university degree is reliant on memorising a textbook, you are a low-skilled worker. We need companies and countries with workforces that are flexible.”
Donovan predicted a return to the imperial model of trade, where raw materials and intellectual property were imported, while “everything else” happened close to the consumer. “Raw materials will still be globalised, but finished products will be declining as a force for global trade in the years ahead.”
Source: Originally published in Business Day, Ziady. H, September 6, 2017. Globalisation gives way to localisation, in profound change, UBS economist says.