On the short term: Modest growth ahead
After tumultuous years marked by the COVID-pandemic and the energy crisis following Russia’s invasion of Ukraine, the global economy has entered a comparatively stable phase. Our global outlook for 2024 anticipates modest economic growth of 3.1% next year. We expect recessions in the US and the UK, with the eurozone and Japanese economies muddling through. While this growth is insufficient to improve the lives of people in emerging markets, it aligns with the intentional efforts of central banks to combat inflation by raising interest rates. This results in increased lending costs for companies and governments and subsequently reduced investment. Additionally, persistent geopolitical concerns, such as the ongoing war in Ukraine, the conflict between Israel and Hamas, and trade tensions between China and the US, add to the challenges.
Economic growth thus falls short of investors' expectations. Elevated return expectations, driven primarily by market growth, prompt companies to focus on efficiency, stock buybacks, or other value-enhancing strategies.
However, this ‘low’ global growth still adds an economy the size of the world economy in 1970 or the current size of the UK economy to global economic activity. Rather than a disappointment, this should be a cause of concern. By now it is clear that climate change and loss of biodiversity are serious problems that require immediate action. As we approach COP28, however, it becomes increasingly evident that globally, we are struggling to decouple economic activity from adverse effects on the ecosystem.
Our predicament lies in having a growth-dependent economic system that does not grow enough while at the same time increased economic activities will further jeopardise the foundation of our existence – our ecosystems. This is the contradiction we need to solve.
On the long term: towards a post-growth economy
In our long-term outlook, we present three pathways towards post-growth. These pathways illustrate what it could entail if we get off the road to ecological disaster. This involves reshaping the economy to be less dependent on growth while still ensuring prosperity for all. It's crucial to acknowledge that one of the main reasons for discussing no growth or even a decline in economic activity in affluent countries is that additional material prosperity does not necessarily contribute to overall well-being. Discussion about an economy beyond growth is essential, primarily to allow less affluent countries, where growth still positively impacts living conditions, the space to progress.
Embarking on these alternative pathways demands radical shifts. Some sectors must be phased out, while others should get the chance to thrive. High polluting sectors, such as fossil fuels, fast fashion, and industrial agriculture, may generate financial value, but they also strongly erode ecological and social values, subtracting from (future) wealth. However, in a post-growth economy, there is room for restorative businesses that create net-positive value to flourish. Facilitating this requires significant changes, spanning from policies to behaviour, but it is a plausible undertaking. We built the current system, and it served its purpose, so we will also be able to build a new, better one.
The pathways we propose as alternatives to the business-as-usual scenarios presented by other financial institutions may seem too radical. Yet a transformation to a genuinely sustainable society does take more than sustainable investments. It starts with a vision on a sustainable economic system and what that looks like from a macro perspective. Leaving our system intact and going about business-as-usual while aiming to invest for a sustainable future is simply impossible.
The contribution of the financial sector and investors to a post-growth transition begins with a value-based reorientation towards the common good. Their goal should evolve from creating only financial value to multi-capital creation. With that, we mean the creation (or restoration) of natural capital, human capital, social capital and financial capital. Financial actors must see themselves as stewards of the future, bookkeepers of all capitals for future generations, makingconscious investmentsin the transitions that we and future generations need. Positive impact should come before risk and return in the short-term.
New, healthy wealth can only be found by making impact in the real economy, directed at our future needs.