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Emerging markets, such as Africa, have been behind the biggest economic shift in recent times. In terms of purchasing power parity, they lifted their share by nearly 23 percentage points to 58.7% between 1980 and 2017, according to the World Bank.

India’s share was comparable to China’s 30 years ago, but it is a more humble 7.2% today. In current US dollar terms, more appropriate when looking at China, GDP shares are rather lower, but the trend is the same. India’s share is a somewhat paltry 2.8%, while China’s is 14.8%. No other country has come close to the latter’s economic achievements.

AUTHOR: George Magnus, economist, author and associate at the China Centre,
Oxford University

In reality, though, this is essentially about China, which boosted its share by nearly 15 percentage points to stand at 18.3%.

The impact of demographics

Demographic trends will play a significant role. The predicted two billion rise in Africa’s working age population will be slightly more than the increase in the rest of the world combined, and Africa’s share of working age people will rise from about 13% to over 40% by 2100.

This gives Africa the potential for extraordinary and transformational change.

Yet it is not assured, and depends on many factors, including improved reproductive and general health; sustained investment in education and skill formation; strong institutions; and, importantly, enough jobs to absorb large increases in the working age population.

Normally this depends on labour-intensive manufacturing: but how can we know how this will evolve in the age of automation and artificial intelligence? Nevertheless, this is certainly a part of the world that will merit close monitoring.

A 30-year bond bear market

One of the biggest sources of uncertainty is whether ageing societies will prove to be inflationary or deflationary – a distinction with significant implications for real interest
rates and the investment climate.

Based on current forecasts, these societies include Europe, the US and Japan. There is a consensus view that they will be less dynamic, featuring weaker savings and investments,
continued low inflation and persistently low levels of real interest rates. But this might not be right.

The stagnation or fall in the working age population in ageing societies will make skills, and perhaps labour in general, scarce. Scarcity tends to be reflected in higher
returns, in this case wages. The era of low inflation and flat Phillips curves (insensitivity of wages to low rates of unemployment) may be ending, therefore, and inflation could rise again.

Some of the factors that have held back wages and pricing power may not suppress inflation as much in the future as they have done in the recent past.
These include the lingering effects of the financial crisis, anaemic demand and weak investment, globalisation, and lower skilled people replacing higher skilled retirees and
those digitised out of jobs.

A challenging future

Looking across these trends highlights one overriding theme: uncertainty.

China may seize a commanding role on the global stage but it has to manage a number of serious social, economic and political issues over the next few decades. India has demographics on its side but economic growth could be held back by the sheer scale of change that would allow this democracy to maximise its potential.

The potential for transformation is even greater in Africa but the journey is also longer and more tortuous. Across the globe, ageing societies and inflation pose a long-term threat, while the impact of artificial intelligence remains unknown and possibly unknowable.

Add in rising geopolitical tensions, climate change and unwanted migration flows and the world could be a volatile place. In such an environment, gold may prove an effective
investment for the coming decades.

This an edited version of a report complied by the World Gold Council. It can be downloaded here