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- Jan. 15, 2015 -

 
       
   

Supply Chain Graphic of the Week: Preparing for Decades of Slowing Global Growth

 

Declining Population Rates will Dramatically Reduce Economic Growth - Unless we Can Find a Way to Boost Productivity Levels

 
       
   

By SCDigest Editorial Staff

 
   

 

Our supply chains of course are deeply connected to the broader economic climate. As just one simple example, in times of high growth, the challenge is often to effectively produce and fulfill to that growing demand.

In tougher times, naturally supply chain cost cutting tends to be the order of the day.

 

These are just simple examples, but provide as some context to an interesting new chart we ran ran across from the consultants at McKinsey. As shown below, McKinsey expects global economic growth to really slow over the next 50 years - starting soon - versus the pace from 1950 through 2014.

 

 


The total difference in output and wealth creation between an average annual growth rate of 3.8% and just the 2.1% rate McKinsey now forecasts over coming decades is beyond huge - tens if not hundreds of trillions of dollars. It would also likely mean poor countries will take much longer to reach higher levels of prosperity than if the global economy grew at the more robust recent pace.

 

Why is growth likely to slow so dramatically? Interestingly, the number one factor is lower population growth. A significant amount of GDP growth, it turns out, is created simply by the fact of there being more people in the workforce over time.

 

McKinsey forecasts that lower population growth will result in global employment growth of just 0.3% annually during the next 50 years. Compounding that issue, the percent of the global population that will be in their retirement, low output years will naturally increase with slowing rates of new births, already a huge issue in most Western nations.

 

Is there some sort of solution to this demographic nightmare? McKinsey says Yes - the world must find a way to accelerate productivity growth.

 

"Achieving the increase in productivity required to revitalize the global economy will force business owners, managers, and workers to innovate by adopting new approaches that improve the way they operate," McKinsey says.

 

It adds that "Business must play a critical role: aggressively upgrading capital and technology, taking risks by investing in R&D and unproven technologies or processes, and mitigating the labor pool’s erosion by providing a more flexible work environment for women and older workers, as well as training and mentorship for young people."

 

SCDigest notes that increasing economic growth will be essential if there is to be any real hope of supporting the huge cohort of retirees most Western countries - and even China - will see in the next 20 years.

 

Any Feedback on our Supply Chain Graphic of the Week? Let us know your thoughts at the Feedback section below.

 
   
 
   
 

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