Five megatrends shaping the future economy

Domestic politics, international conflicts, Trump’s trade policies, inflation, interest rates and the economic cycle. These are topics that regularly dominate the news. They affect the economy here and now, with the impact quickly showing up in the stock market, the SEK currency, mortgage rates and, ultimately, our own finances.

At the same time, slower-moving changes are taking place that could have just as much economic significance over time. New technology is changing how we work and produce goods and services. Populations are ageing. Security policy is influencing how companies organise their production. Energy systems are being transformed as demand for electricity grows. Much of this also comes with an increasing need for capital.

Over a ten-year horizon, these developments could change the conditions for both the global economy and our personal finances. Some of them are already clearly visible.

AI and automation

Investment in artificial intelligence has grown rapidly in recent years. Data centres are being built, demand for semiconductors and electricity is increasing, and companies are committing significant resources to finding practical applications for the technology.

Over the coming decade, the results of these investments should become clearer. Companies will automate more administrative tasks, analysis, customer interactions and parts of their decision-making. Achieving real productivity gains will also require training, reliable data and new ways of working. Companies that manage this transition successfully may be able to produce more with the same resources and gain a clear advantage over their competitors. Differences between countries could also widen, as the ability to benefit from the technology varies depending on education levels, digital infrastructure and access to capital.

Many professions will change as a result. Technical expertise will become increasingly valuable, alongside the ability to combine technology with business understanding, accountability and human judgement.

An ageing population

Demographics are among the more predictable changes of the coming decade. Sweden, Europe, China and many other economies are facing increasingly ageing populations while birth rates are declining. A larger share of older people means rising expenditure on pensions, healthcare and elderly care. At the same time, the workforce needs to meet the demands of both the welfare system and the wider economy. Labour shortages already exist in areas such as healthcare, technology and several skilled trades, and these shortages may become more pronounced.

This puts pressure on pension systems, public finances and labour markets. Higher employment rates, later retirement and increased productivity could all play an important role in how countries respond.

Consumption patterns will also change as populations age. Healthcare, pharmaceuticals, elderly care, and technology and services aimed at older people will represent growing markets. Housing demand may develop very differently across major cities, regional centres and municipalities with declining populations.

For individuals, long-term financial planning will become increasingly important. How long we work, the pensions we receive and the capital we manage to accumulate during our working lives will all influence our financial options later in life.

Global trade is being reshaped

For several decades, companies built long international supply chains and located production wherever it could be carried out most efficiently. The pandemic, the war in Ukraine, tensions between the US and China and recent trade disputes have changed that calculation.

Security of supply now carries greater weight. The US, China and the EU are seeking to reduce their dependence on other countries in areas such as energy, semiconductors, pharmaceuticals, defence and critical raw materials. Companies are diversifying their suppliers, holding larger inventories and moving some production closer to their key markets.

This comes at a cost. Production becomes more resilient to disruption, while some of the cost advantages built up during the era of globalisation are weakened.

Over a ten-year horizon, the global economy may become more clearly divided into trade and technology blocs. Companies may need different suppliers, technical standards and solutions depending on the markets in which they operate.

For Sweden, this matters greatly. We are a small, export-dependent economy with many companies operating in global markets. At the same time, major European investments in defence, energy, infrastructure and industrial capacity are expected, creating new business opportunities.

Electrification requires enormous investment

Demand for electricity is growing from several directions at once. Transport is becoming electrified, industry is transitioning and data centres require increasing amounts of energy. At the same time, more solar, wind and other fossil-free power generation is being built.

Electricity grids need to keep pace. Grid capacity has already become a bottleneck in many places, and the investments required in the years ahead are substantial.

For Sweden, access to stable and reasonably priced electricity will be an important factor in industrial competitiveness. Companies planning major investments need confidence that sufficient power generation and grid capacity will be available.

Climate change is creating additional investment needs. Buildings, roads, water supplies and other infrastructure need to be adapted to flooding, heat and other weather-related risks. For households, these developments may be reflected in changing costs for energy, transport, housing and insurance.

A growing need for capital

Several of these major developments converge on the same question: how will it all be financed? AI development requires data centres, semiconductors and electricity. The energy transition requires new generation capacity and electricity grids. Europe is spending more on defence. An ageing population increases expenditure on pensions, healthcare and elderly care. On top of this come investments in infrastructure and climate adaptation.

Governments and companies will therefore require large amounts of capital for many years to come. Many governments are also entering this period with already high levels of debt, which could have implications for interest rates. Policy rates will continue to move with inflation and the economic cycle, while large borrowing requirements, geopolitical uncertainty and inflation risks may keep longer-term market rates at higher levels.

For savers and investors, this could mean that fixed-income investments and credit continue to play a larger role than they did during the years of extremely low interest rates. Significant financing needs also create opportunities for those providing capital, while credit assessment and diversification become important in a more volatile economic environment.

The economy in 2036

Ten years is long enough for a great deal to change, while still being a timeframe in which several of the major trends are already visible.

Populations are ageing. Electrification continues. AI is being introduced into more and more areas of the economy. Companies are adapting their supply chains to a changing geopolitical environment, while investments in technology, energy, defence and infrastructure need to be financed.

Exactly where this will lead will only become clear with hindsight. For long-term investors, building a strategy around a specific prediction of what the world will look like ten years from now is therefore difficult. Diversification across companies, sectors, geographical markets and different asset classes provides a way to prepare for several possible outcomes.

The next inflation figure, interest rate decision or announcement from the White House will still be able to move markets from one day to the next. Over the longer term, the slower changes taking place in the background will also leave their mark on corporate profits, our jobs, our pensions and the value of our savings and investments.

At SaveLend, we follow economic developments both here and now and with an eye on the longer term. Conditions are constantly changing, sometimes rapidly and sometimes through the slower shifts described here. Understanding both perspectives helps us stay ahead of developments, adapt our products as the world changes and continue to create competitive offerings for our customers.

If you have any questions, thoughts or would like to learn more about our products, you are always welcome to get in touch.