Crystal Ball

• Author: Kalpana Kochhar, Yan Sun, Evridiki Tsounta, and Niklas Westelius
• Position: Deputy Director, is Deputy Unit Chief, and and are Senior Economists, all in the IMF’s Strategy, Policy, and Review Department.

“All predictions are wrong; that’s one of the few certainties granted to mankind.” —Milan Kundera

The global economy is undergoing a series of transformations that subject the future to considerable uncertainty, complexity, and unpredictability. Some transformations, like recovery from the global financial crisis, are cyclical; others, like demographic developments and the rapid increase in interconnectedness, are longer term and more structural in nature. These transformations interact in shaping the future, making extrapolation from the past an increasingly unreliable lens for peering into the future.

With the global financial crisis in the rearview mirror, an effort was initiated at the IMF last year to better tailor the Fund’s near-term focus on managing transition from the crisis to long-term perspectives. The work focused on identifying underlying currents and associated uncertainties that will mold the world we live in over the coming decades. Understanding their nature, speed, and—importantly—how they interact is crucial to preparing for future challenges and being alert to risks that could lead to new crises.

Of course, selecting which trends and uncertainties could shape the future global economy is daunting too. Aided by extensive internal and external consultations, the IMF staff team narrowed its focus to a critical few: demographics, diffusion of power, resource and environmental sustainability, interconnectedness, and income inequality. These were deemed particularly relevant for the IMF and its membership thanks to their potential large impact on the sustainability and stability of economic growth. They should not be interpreted as predictions about the future, and their evolution over time is also uncertain.

Demographic pressures

The world population is projected to increase to more than 8 billion by 2030 and to age at an unprecedented rate; for the first time in history, by 2020 children younger than 5 will be outnumbered by people 65 and older (NIA, 2007). In all regions except sub-Saharan Africa the elderly population will increase more than the working-age population, driving up age-related costs. At the same time, increased life expectancy means people can work longer. Some emerging markets, including China, may get old before they get rich owing to a declining population. But many developing economies, especially in sub-Saharan Africa and south Asia, will have to generate job opportunities for new labor market...